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NICHOLSON 


ON 


Factory  Organization 
and  Costs 


By 

J.  LEE  NICHOLSON 

Certified  Public  Accountant  and 
Factory  Cost  Specialist 


KOHL   TECHNICAL   PUBLISHING   CO. 

NEW  YORK 
1909 


1) 


COPYRIGHTED,  1909 
BY  J.  LEE   NICHOLSON 


ENTERED  AT  STATIONERS'  HALL,  LONDON,  1909 


M3 
cop, 


PREFACE 

THIS  work  is  intended  primarily  as  a  handbook  for  manufacturers  who  are  interested  in  modern 
methods  of  Organization  and  Systems,  for  Accountants  and  Cost  Specialists  as  a  book  of  reference, 
and  also  as  a  textbook  on  cost  accounting  for  the  student. 

Furthermore,  it  is  the  author's  purpose  to  outline  and  explain  all  the  best  known  methods 
of  Factory  Organization  that  relate  to  Cost  Finding  in  such  a  manner  as  to  enable  the  manufac 
turer  to  compare  these  methods  with  those  in  use  in  his  own  plant,  in  order  that  he  may  see  more 
clearly  the  defects  in  his  organization  and  how  to  remedy  them. 

It  is  the  hope  of  the  author  that  the  Public  Accountant,  Systematizer,  and  Cost  Clerk  will 
find  this  work  to  be  of  value  as  a  reference  in  planning,  devising,  or  changing  a  factory  system. 


CONTENTS 


CHAPTER  I 

ORGANIZATION    AND    COST   FINDING 

PAGE 

Value  of  Experience  and  Theory  Combined — Some  Objections  to  Cost  Systems  and  Re 
plies — Value  of  Modern  Methods  Illustrated  by  Charles  M.  Schwab — Effect  of  Cost 
Systems,  on  Organization  Independent  of  Cost  Findings — Value  of  Costs  to  Sales  Depart 
ment — System  Necessary  Due  to  Growth  of  Business — Value  of  System  to  Management 
— Changes  in  Manufacturing  Necessitate  Changes  in  System — Leaks  in  Business  Located 
by  Proper  Organization — Comparison  between  a  Well-organized  Factory  and  One 
Conducted  on  an  Unsystematic  Basis — "Too  Much  System,"  "Too  Much  Red  Tape" — 
Right  and  Wrong  Use  of  Forms — Different  Factory  Conditions  in  the  Same  Lines  of 
Manufacturing — The  Reason — Overhead  Expense — Outline  Showing  how  this  Book 
will  Benefit  All  Manufacturers — Defects  in  Method  of  Determining  Annual  Profit, 
Value  of  Monthly  Financial  Statements — WThere  Does  Profit  End,  and  Loss  Begin? — 
The  Answer  1 


CHAPTER   II 

WAGE    SYSTEMS 

General  Relation  to  Costs — Plans  Treated — Day  Rate — Piece  Work — Differential  Rate — 
Premium — Bonus — Profit  Sharing  and  Stock  Distribution — Choice  of  a  Method — Two 
or  More  Methods  May  Be  Used — Selection  of  Plan  Important — Introduction  of  Wage 
Systems  May  Introduce  a  New  Profession — Co-operation  of  Employer  and  Employee — 
Individuality  of  Workmen. 

DAY  RATE — Necessary  in  Certain  Class  of  Work — Method  of — Beginning  of — Disadvantages 
of — No  Incentive — "Soldiering" — No  Uniform  Cost  per  Article — Waiting  Time — 
Amount  of  Loss  Resulting  from  Five  Minutes  Lost  Time  per  Day  for  a  Year  of  from 
One  to  One  Hundred  Workmen — Loss  Shown  of  600  Workmen  Losing  an  Hour  Each. 

PIECE  WORK:  Method  of — Great  Care  Required  in  Fixing  Rate — Cutting  Rate  After  Being 
Set — Dissatisfaction  of  Workmen — Necessity  of  a  Fair  Rate  and  the  Effect  on  Produc 
tion — Saving  in  Cost  of  Production  Illustrated — Inspection — How  to  Fix  Rates. 

DIFFERENTIAL  RATE  PLAN:  Method  of — Relation  to  Piece  Work — Effect  on  Workmen — 
Result  to  Employer — Schedule  Showing  Results — Differentiating  between  Good  and 
Poor  Workmen — Quality  of  Work  an  Integral  Feature — Advantages  of. 

PREMIUM  PLAN:  Comparison  with  Piece  Work — Method  of — Less  Opposition  to  Introduc 
tion — Illustration  of  Working — Schedule  of  Different  Plans  Showing  Result  of  Each. 

BONUS  PLAN:  Method  of — Close  Relation  to  Premium — Fixing  the  Rate — Summary  of 
Advantages  of  Premium  and  Bonus  Plans. 

PROFIT  SHARING  AND  STOCK  DISTRIBUTING:  Method  of — Usually  Unsatisfactory — A  New 

Method  of  Distribution  of  Profits — "Human  Element"  in  Installing  any  of  the  Plans.  10 


vi  CONTENTS 

CHAPTER  III 

ANALYSIS    OF    COST    ACCOUNTING 

PAGE 

Lack  of  Knowledge  of  the  Subject — Actual  Costs — Selling  and  Administrative  Expenses 
not  Included  in  Factory  Costs — Partial  Costs — Central  Idea  or  Principle — Elements 
of  Costs — Material — Labor — Expense — Analysis  of  Each — Diagram  Illustrating  All 
Stages  of  Costs — Operating  Department  Explained — Operating  Departments  of  Tex 
tile,  Stove  and  Machine  Shop  Industries — Incorrect  Principles  in  Distributing  Over 
head  Charges — Recording  Costs  by  Operating  Department — Some  Important  Elements 
of  Indirect  Charges — Interest  on  Investment — Depreciation 28 

CHAPTER  IV 

DISTRIBUTION    OF    INDIRECT    EXPENSES 

Application  of — The    Blanket    Method — The    Most    Inaccurate   of   All   Methods — No  One 

Method  Suitable  to  All  Plants — Outline  of  Methods  and  How  Used. 
DIRECT    LABOR    COST — Its    Simplicity — Principle    Involved — Method    of  —  Illustration  of 

Method — Incorrect  when  Applied   to  a  Plant  as  a  Whole — More  Accurate  when  Used 

Departmentally. 
DIRECT  LABOR  HOURS — Difference  between  this  Method  and  Direct  Labor  Cost — Method 

Explained  by  Illustration  Showing  Comparison  with  First  Method — Where  Incorrect — 

Conditions  where  Applicable. 

DIRECT  LABOR  AND  MATERIAL — Where  it  can  be  Used — Usually  Inaccurate. 
OLD  MACHINE  RATE — Method  of — Where  it  Breaks  Down — Only  Condition   where  it  can 

be  Used. 
NEW  MACHINE  RATE — What  Constitutes  the  Best  Method — Basic  Principles  of — Method  of 

Arriving  at  Rate. 
FIXED    MACHINE    RATE — Principle    of — Method    of   Using   Rate — Supplementary    Rate — 

Difference  between  Fixed  and  New  Machine  Rate — Where  it  is  Unsatisfactory. 
NEW  PAY  RATE — Method  and  Principle  of — How  it  is  Obtained — Saving  of  Time  in  Using.       38 

CHAPTER   V 

GENERAL   INTRODUCTION    TO    FORMS    AND    SYSTEMS 

Principles  Used  in  Forms  and  Systems — Course  to  be  Followed  in  Study. 

ESTIMATED  COST  SYSTEMS — Method  of — Principles  Involved — When  a  Stock  System  should 
be  Installed — What  Action  should  be  Taken  when  Results  Show  Inaccurate  Estimates. 

ACTUAL  COST  SYSTEMS — Importance  of — Conditions  Governing  Introduction — Stock  Sys 
tems — Forms  Used  in  All  Systems 58 

CHAPTER   VI 

GENERAL    INTRODUCTION   TO    DESIGNS    AND    EXPLANATIONS 

Designs  Used  in  Actual  Operation — Conditions  under  Which  Used — How  to  Select  Forms — 
Errors  in  Designing  Forms — Necessity  of  a  Form  General  in  Design — Size — Explana 
tion  of  Broken  Line — Knowledge  of  Principles  of  Cost  Necessary — Where  both  Manu 
facturer  and  the  Accountant  Are  at  Fault  64 


CONTENTS  vii 


PAGE 

Three  Different  Designs — Explanations  concerning  Use        ......  67 


CHAPTER   VIII 

PURCHASE    ORDERS 

Four  Different  Designs — Explanations  concerning  Use 70 

CHAPTER   IX 

REPORT  OF  MATERIAL  RECEIVED 

Seven  Different  Designs — Explanations  showing  Conditions  under  Which  All  are  Used — Im 
portance  of  Using  a  Form  of  this  Character 74 

CHAPTER   X 

STOCK  RECORD — RAW  MATERIAL 

Nine  Different  Forms — Conditions  under  Which  to  Use  in  Quantity  Only,  or  Value  and 
Quantity — How  Interlocked  with  Other  Records — Value  to  Purchasing  Agent — Proof 
of — Value  of  the  Form 82 

CHAPTER    XI 

PRODUCTION*    ORDER 

Sixteen  Kinds  of  Production  Orders  Illustrated — General  Use — Duplicates — Conditions  under 

Which  they  are  Used — Relation  to  Costs 91 

CHAPTER   XII 

BILL    OF    MATERIAL.      REPORT   OF    MATERIAL    DELIVERED 

Six  Different  Forms  of  Material  Requisitions — Two  Separate  Designs  of  Bills  of  Material, 
and  Four  of  Reports  of  Material  Delivered — Use  of  Forms  and  Conditions  under  Which 
they  are  Used — Relation  of  Bill  of  Material  to  Material  Requisition  104 

CHAPTER   XIII 

TIME    TICKETS 

Twenty-eight  Different  Forms  Illustrated,  including  Clock  and  Time  Stamp-tickets— How 

Used— Day  Work— Piece  Work— Time  Clock— Use  in  Cost  Systems— Differential  Rate   .     110 


viii  CONTENTS 


CHAPTER  XIV 

PAGE 
PAY   ROLLS    AND    DISTRIBUTION    SHEETS 

Fourteen  Forms,  showing  Nature   of  Pay  Rolls — Distribution  of  Labor — Relation  to  Dis 
tribution  of  Overhead  Charges  and  Cost  Records 122 


CHAPTER  XV 

PRODUCTION   REPORT 

Fourteen  Forms,  representing  Different  Conditions — Value — Use  in  Connection  with  Other 

Records  and  Costs — Use  as  a  Cost  Record 132 


CHAPTER  XVI 

STOCK   RECORDS — FINISHED    PRODUCT 

Six  Forms,  Different  in  Design,  showing  Inventory — Orders  Received — Cancelled  Orders — 
Unfilled  Orders — Sales — Profits — Where  Information  is  Obtained — The  Effect  of  the 
Unit  Profit  System  on  the  Earnings  of  an  Enterprise 144 


CHAPTER   XVII 

COST   RECORDS 

Twenty-one  Forms  for  Recording  Costs — Use  in  Special  Orders — Contracts — Machine 
Costs — Conditions  under  Which  they  are  Designed  and  Used — Relation  to  Distribution 
of  Indirect  Expenses — Estimated  Cost  Forms — Power  Cost  and  Distribution  .  .  .  .  148 


CHAPTER  XVIII 

DEFECTIVE    WORK   REPORTS 

Two  Forms,  showing  Use — Value — Disposition  of  Defective  Work 165 

CHAPTER  XIX 

STATEMENT    OF   FACTORY   EXPENDITURES 

Four  Different  Designs  representing  Factory  Operations — Showing  Plant  as  a  Whole — 
Departmental  Expenditures:  Material,  Labor,  and  Indirect — Inventory — Purchases — 
Material  Delivered  to  Factory — Departmental  Expenses — Method  of  Distribution  of 
Indirect — Classification  and  Costs 167 


CONTEXTS  ix 

CHAPTER   XX 

OPERATING    LEDGER 

PAGE 

Three  Designs,  showing  how  Factory  Charges  are  Recapitulated  —  Relation  to  Voucher  — 
Account  Numbers  —  Proof  with  General  Ledger  —  Analysis  of  Charges  by  Month  or 
Year  —  Relation  to  Purchase  Journal  ..................  171 


CHAPTER  XXI 

BILLING    SYSTEM  —  SALES  —  CREDIT    CERTIFICATE 

One  Form  of  Sales  Sheet  and  One  of  Credit  Certificate  Shown  —  General  Use  of  the  Forms  and 

Their  Relation  to  Costs     ......................     175 


CHAPTER  XXII 

REGISTER    OF   SALES    AND    COSTS 

Ten  Forms  Different  in  Design  —  Classifying  Costs  and  Sales  on  These  Records  —  Postings 

to  the  Ledger  ..........................     178 

CHAPTER  XXIII 

ACCOUNTS    PAYABLE    VOUCHER 

Two  Different  Designs,  explaining  Use  and  illustrating  Connection  with  the  Register  of 

Accounts  Payable  and  Operating  Ledger     ................     182 

CHAPTER  XXIV 

REGISTER  OF  ACCOUNTS  PAYABLE,  OR  PURCHASE  JOURNAL 

Four  Forms  Illustrated  —  Use  —  Explanation  of  Postings  .............     186 

CHAPTER   XXV 

CHECK    VOUCHERS 

Two  Distinct  Forms  —  Explanation  of  —  How  Used  ............     ,     .     .     191 

CHAPTER  XXVI 

CASH    SYSTEM 

Register  of  Receipts  and  Disbursements  (2  forms)  —  Report  of  Expenditures  (1  form)  — 
Cash  Voucher  (1  form)—  Pay  Envelope  (1  form)  —  Distribution  of  Money  for  Pay  Roll 
(2  forms)  —  Explanations  Referring  to  General  Use  —  Deposit  of  Currency  —  Petty  Cash 
Funds  —  Bank  Columns  .....................  193 


x  CONTENTS 

CHAPTER  XXVII 

GENERAL   FORMS 

PAGE 

Classification  of  Accounts — Customers'  Ledger  showing  Profit  or  Loss  on  Sales  (1  form) 
— Customers'  Record  Card  (1  form) — Customers'  Record  of  Pattern  Costs  (2  forms) — 
Statement  of  Private  Ledger  (1  form) — General  Ledger — Controlling  Accounts — Consign 
ment  Accounts — Factory  Accounts — Assets — Liabilities — Reserve  Funds — Surplus — 
Administrative  Expenses — Depreciation — Selling  Expenses — Method  of  Keeping  Ac 
counts  according  to  Classification — Classification  of  Accounts  in  Detail — New  Form  of 
Private  Ledger — Profit  on  Customer 200 

CHAPTER   XXVIII 

DRAWINGS,    PATTERNS,    AND    EQUIPMENT   RECORDS 

Plant  Cards  (4  forms) — Tools  Records  (2  forms) — Pattern  Record  (1  form) — Drawing 
Record  (1  form) — Estimating  Records  (2  forms) — Contract  and  Price  Records  (3  forms) 
— Inventory — Repair  and  Maintenance  Cost — Tool  Room — Estimates — Section  Cost — 
Use  of  Price  Cards — Value  to  Purchasing  Agent  209 

CHAPTER  XXIX 

INVENTORY    OF    MATERIAL   FORMS 

Five  Different  Designs,  showing  Use  in  Relation  to  Stock  Systems 217 

CHAPTER  XXX 

SALES    REPORTS    AND    ANALYSIS 

Salesmen's  Reports  (1  form) — Salesmen's  Costs  (1  form) — Sales  and  Selling  Costs  (1  form) — 
Orders  and  Sales  (1  form) — Salesmen's  Record,  showing  Sales  by  Territor}r,  Costs, 
Selling  Expenses  and  Profits — Classification  Cost  of  Orders — Sales  and  Selling 
Costs 221 

CHAPTER  XXXI 

MONTHLY   REPORT   RELATIVE    TO   FINANCIAL   STATUS    AND    EARNINGS 

Production  and  Costs  (1  form) — Statement  of  Profit  and  Loss  (2  forms) — Comparative 
Statement  of  Profit  and  Loss  (1  form) — Comparative  Balance  Sheet  (2  forms) — Classifi 
cation  of  Financial  Statements — Monthly  Earnings 225 

CHAPTER   XXXII 

ESTIMATED    COST   SYSTEM    BASED    ON    AN    ANNUAL    VERIFICATION    OF    MATERIAL,    LABOR,    AND 

INDIRECT   EXPENSES 

Simplest  Condition — Proof  at  Inventory  Periods — Bookkeeping  Forms  not  Affected — 
Beginning  Inventory — Schedule  of  Estimated  Costs — Sales  Analysis — Complete  Plan  of 
Verification  232 


CONTEXTS  xi 


CHAPTER  XXXIII 

ESTIMATED    COST   SYSTEM    BASED    OX    AN    ANNUAL   VERIFICATION    OF    DEPARTMENTAL   CHARGES 
FOR    MATERIAL,    LABOR,    AND    INDIRECT    EXPENSES 

PAGE 

Dividing  the  Elements  of  Estimated  Costs— Conditions  under  Which  the  Best  Results  are 
Obtained — Inventory  Record — Schedule  of  Estimated  Costs — Sales  Analysis— Purchase 
Journal — Pay  Roll — Complete  Explanation  of  Plan — Relation  to  Ledger  and  Postings 
— Gross  Profit  Explained  237 


CHAPTER  XXXIV 

ESTIMATED    COST    SYSTEM    BASED    ON    A    MONTHLY    OR    ANNUAL    VERIFICATION    OF    ESTIMATED 
COST    OF    CLASS    OF    PRODUCT    ACCORDING    TO    DEPARTMENTAL    MATERIAL,    LABOR,    AND 

INDIRECT    EXPENSES 

Principles — Method — Different  Elements — Inventory— Schedule  of  Estimated  Cost  by  Class 
of  Product — Analysis  of  Cost  by  Classification — Use  of  Purchase  Journal — Material 
Requisition — Summary  of  Material — Time  Reports — Pay  Roll — Plan  of  Verification, 
Showing  Inventory — Charges  for  Labor  and  Material  by  Department — Estimated  Cost 
of  Sales  by  Classification — Accounting  Features  in  the  Ledger — Statement  of  Profit  and 
Loss  and  how  Arrived  at  Monthly  on  Estimated  Cost  Basis,  and  Yearly  on  Inventory- 
Inventory  Closing — Treatment  of  Selling  and  Administrative  Expenses — Balance  Sheet  244 


CHAPTER   XXXV 

DEPARTMENTAL    COST   SYSTEMS,    SHOWING    COSTS    AND    PROFITS    AT   INVENTORY    PERIODS 

Nature  of  System — Nro  Extra  Clerk  Hire  Required — Organization  Value  of  a  Production 
Order — Its  Use  as  a  Cost  Record — Bill  of  Material  -for  Schedule  of  Material  Cost  and 
How  Used — The  Relation  of  Day  and  Piece  Work  Plan  to  this  System — How  the  Pay 
Roll  is  Analyzed — Nature  and  Use  of  the  Production  Report — The  Use  of  a  Register 
of  Accounts  Payable  and  How  it  should  be  Kept — Register  of  Sales  showing  Classifica 
tion  by  Departments — Departmental  Accounts — Handling  of  Raw  Material — Classi 
fication  of  Accounts  and  How  Charged  and  Credited — Profit  and  Loss — Inventory  .  .  256 


CHAPTER  XXXVI 

SPECIAL   ORDER    SYSTEM    ACCORDING    TO   THE    PRODUCTIVE    LABOR    METHOD   OF    COST   FINDING 

Conditions  Governing  the  Application  of — Principles  Involved — Stock  System  Outlined— 
General  Outline  of  Systems— Method  of  Ordering  Material— Reporting  Material  Re 
ceived — Order  on  Factory  to  Manufacturer — Dejivery  of  Material  from  Stock  to 
Factory — Time  Reporting — Pay  Roll— Finished  Stock — Factory  Expenditures— Billing 
System — Returned  Goods  and  Allowance — Sales  and  Cost — Cash  Receipts  and  Ex 
penditures  


xii  CONTENTS 


CHAPTER  XXXVII 

SPECIAL  ORDER  SYSTEM   ACCORDING   TO   THE   PROCESS   OR   MACHINE   COST   METHOD   OF   COST  FINDING 

PAGE 

Conditions  Governing  Use — Basic  Principles  Involved — Distribution  of  Power  Costs — 
Machine  Costs  per  Hour — Distribution  of  Indirect — Treatment  of  Depreciation,  Repairs, 
Insurance — Interest  on  Investment — Floor  Space  and  Machine  Charges — Application  of 
Machine  Rate  to  Orders — Use  of  Material — Requisitions  and  Time  Reports — Pay  Roll- 
Process  Cost  Records — Accuracy  and  Simplicity  Combined — Preparation  of  Profit  and 
Loss  Statements  and  Balance  Sheet  .  291 


CHAPTER  XXXVIII 

PRODUCT   SYSTEM    ACCORDING    TO    THE    PRODUCTIVE    LABOR   METHOD    OF    COST   FINDING 

General  Outline — Various  Functions  of  Material  Requisitions — Material  Delivered — Com 
bination  Day  and  Piece  Work — Analysis  of  Pay  Roll  by  Department — Division  of 
Pay  Roll  when  the  Month  Ends  in  the  Middle  of  the  Week — Standard  Cost  Sheet; 
Illustration  of  Use — Illustration  of  Indirect  on  the  Cost  Sheet — Relation  of  Cost 
Sheet  to  Finished  Product — Detailed  Production  Report — Stock  Record  for  Finished 
Product  showing  Orders  Received,  Unfilled  Orders,  Sales,  Costs,  and  Profits — Method 
of  Handling  Defective  Work — Analysis  of  Factory  Expenditures — The  Use  of  the 
Operating  Ledger — Distinction  between  Factory  and  Sales  Department — A  Plan  to 
Make  Each  Responsible — The  Purpose  of  the  Factory  Account  "according  to  this 
Plan" — The  Relation  of  Each  Department  to  the  Management — The  General  Ledger 
Accounts — Billing  System — Analysis  of  Sales  and  Costs — Description  of  Accounts 
Payable  Voucher — Ledger  Postings  from  Register  of  Accounts  Payable — Check 
Voucher — Verification  of  the  Inventory  from  Day  to  Day — The  Profits  between  the 
Factory  and  Sales  Department  as  a  Separate  Factor — The  Preparation  of  Profit  and 
Loss  Statements  and  Balance  Sheets 306 


CHAPTER  XXXIX 

PRODUCT   SYSTEM    ACCORDING    TO   THE    PROCESS    OR    MACHINE    COST   METHOD    OF    COST   FINDING 

Conditions  under  Which  to  Use— General  Outline  of  Method— Sundry  Forms  Used— Time 

System— Use  of  Cost  Sheet— Check  Voucher 334 


MECHANICAL  OFFICE  APPLIANCES 

CHAPTER  XL 

INTRODUCTION 

Purpose  of  this  Subject  in  the   Work— How  Appliances  are  Explained— General  Advan 
tage—Proper  Conditions  under  Which  to  Use 345 


CONTENTS  xiii 

CHAPTER  XLI 

CALCULATING    AND    COMPUTING    MACHINES 

PAGE 

Sixteen  Machines  Mentioned,  of  Which  Six  are  Illustrated  by  Cuts 349 


CHAPTER   XLII 

ADDING    AND    LISTING    MACHINES — TYPEWRITING    MACHINES    WITH    MECHANICAL   DEVICE 

ATTACHMENTS 

Seven  Machines  Mentioned  and  Six  Illustrated  by  Cuts 356 


CHAPTER  XLIII 

MULTIGRAPHS    AND    MIMEOGRAPHS 

Five  Different  Machines  and  Four  Illustrated  by  Cuts 365 

CHAPTER  XLIV 

ADDRESSING    MACHINES 

Four  Machines  Mentioned  and  Illustrated  by  Six  Cuts  . 

CHAPTER  XLV 

TIME    CLOCKS 

Eight  Devices  Mentioned  and  Eight  Cuts  Shown  . 

CHAPTER  XLVI 

TIME    STAMPS 

Six  Different  Makes  Illustrated  by  Ten  Cuts 

CHAPTER  XLVII 

WAGE   TABLES-CHECK   STAMPS-THE    "  PHONOGRAPH  "-COUNTING    MACHINES 

O(~|  A 

Four  Different  Devices  Illustrated  by  Six  Cuts 

CHAPTER  XLVIII 

FILING    AND    LOOSE-LEAF    DEVICES 

399 

Fifteen  Cuts  Illustrating  Various  Devices      . 


FACTORY    ORGANIZATION    AND    COSTS 


CHAPTER  I 

ORGANIZATION   AND   COST   FINDING 

Value  of  Experience  and  Theory  Combined— Some  Objections  to  Cost  Systems  and  Replies- 
Value  of  Modern  Methods  Illustrated  by  Charles  M.  Schwab— Effect  of  Cost  Systems  on  Or 
ganization  Independent  of  Cost  Findings— Value  of  Costs  to  Sales  Department— System  Neces 
sary  Due  to  Growth  of  Business— Value  of  System  to  Management— Changes  in  Manufactur 
ing  Necessitate  Changes  in  System— Leaks  in  Business  Located  by  Proper  Organization- 
Comparison  between  a  Well-organized  Factory  and  One  Conducted  on  an  Unsystematic 
Basis-"Too  Much  System,"  ''Too  Much  Red  Tape"— Right  and  Wrong  Use  of  Forms— Dif 
ferent  Factory  Conditions  in  the  Same  Lines  of  Manufacturing— The  Reason— Overhead  Ex 
pense—Outline  Showing  how  this  Book  will  Benefit  All  Manufacturers— Defects  in  Method 
of  Determining  Annual  Profit,  Value  of  Monthly  Financial  Statements— Where  Does  Profit 
End,  and  Loss  Begin? — The  Answer. 

"ORDER  is  the  first  law  of  the  universe." 

It  is  not  the  intention  of  the  author  to  treat  at  length  of  the  value  of  this 
subject,  as  many  lectures,  pamphlets,  and  booklets  have  been  issued,  and  widely 
distributed,  pointing  out  in  a  very  comprehensive  manner  the  importance  and 
necessity  of  systematic  organization.  The  author  assumes  that  every  manufac 
turer  appreciates,  to  some  extent  at  least,  the  necessity  and  importance  of  both 
organization  and  cost  finding.  In  fact,  no  manufacturer  would  undertake  the 
manufacture  of  any  article  without  ascertaining  something  in  regard  to  the  cost, 
by  either  estimates  or  otherwise. 

While  experience  is  considered  the  great  teacher  and  is  probably  the  most 
valuable  factor  in  conducting  a  manufacturing  business,  yet  a  theoretical  training 
in  the  underlying  principles  of  organization  constitutes  the  foundation-stone  upon 
which  experience  may  build,  and  gives  a  vantage  ground  not  possible  to  the  man 
who  depends  on  experience  alone.  It  furnishes  a  key  by  which  he  may  interpret 
facts  and  conditions  as  they  arise.  It  provides  a  scheme  and  outline  to  which 
particular  events  are  referred,  for  explanation  and  "correlation." 

The  subject  of  factory  organization  has  been  sadly  neglected,  and  has  not  kept 
pace  with  the  invention  of  modern  methods  and  machines.  The  majority  of  manu 
facturers  are  still  using  old  ideas,  which  have  had  their  day,  and  are  no  longer 
effective,  in  any  sense,  in  the  present,  conditions  of  manufacture.  Of  all  the  ele- 


ORGANIZATION   AND    COSTS 

ments  that  enter  in  the  proper  organization  of  a  factory  cost  finding  in  its  modern 
sense  is  perhaps  the  most  essential. 

One  of  the  objections  raised  against  cost  systems  is  that  after  incurring  con 
siderable  expense  incident  to  the  inauguration  of  such  a  system,  some  manufac 
turers,  in  certain  instances,  have  discontinued  the  use  of  the  system  after  a  com 
paratively  short  period.  There  can  be  but  two  explanations  given  in  such  a  case. 
The  first  one  is,  that  the  management  did  not  comprehend  the  system  and  its 
underlying  principles.  The  second  reason  is,  that  the  system  was  defective  in 
design,  and  the  underlying  principles  were  either  not  basic,  or  else  wrongly  ap 
plied.  Defects  of  this  character  in  a  system  usually  involve  such  an  amount  of 
clerical  labor  as  to  make  the  system,  to  a  great  extent,  impracticable.  They 
are  traceable  to  two  principal  causes,  one  of  which  is  that  the  one  designing  the 
system  attempts  to  figure  out  a  plan  of  cost  finding  purely  from  a  bookkeeping 
standpoint,  without  any  reference  to,  or  knowledge  of,  factory  conditions  govern 
ing  the  manufacture  of  the  product.  The  other  cause  is  due  to  the  fact  that  those 
in  the  immediate  charge  of  the  enterprise  are  unfamiliar  with  accounting  and  the 
preparation  of  statistics,  and  are  unable  for  this  reason  to  see  at  the  outset  the 
impractical  features  contained  in  the  system.  In  other  instances,  a  half-hearted 
effort  is  made  to  inaugurate  a  system,  and  the  slightest  resistance  eliminates  the 
desire  of  the  manufacturer  to  continue  his  plans  along  these  lines,  merely  because 
a  few  difficulties  are  encountered  during  the  first  few  days  or  weeks. 

In  all  the  author's  experience  in  dealing  with  manufacturers,  the  statement 
has  never  been  made  that  accurate  methods  of  cost  finding  were  not  an  advantage. 
On  the  contrary,  there  has  been  a  complete  assent  as  to  the  necessity  of  more 
accurate  costs,  the  only  practical  objection  ever  raised  against  such  systems 
being,  that  the  expense  incident  to  changing  from  the  present  method  to  the 
more  advanced  ideas  was  too  great.  It  is  true  that  some  lines  of  manufacture 
require  a  more  elaborate  system  of  cost  finding  than  others,  necessitating  more 
clerical  labor  than  where  this  is  not  the  case,  but  even  in  such  instances  the  manu 
facturer  cannot  afford  to  be  without  a  proper  system,  since  the  greater  the  detail 
the  greater  the  necessity  for  such  a  system.  Cost  what  it  may,  the  value  of  an 
efficient  system  is  manifest. 

The  introduction  of  a  modern  method  of  cost  finding  is  as  important  as  the 
introduction  of  modern  machinery. 

Mr.  Charles  M.  Schwab,  in  his  sketch  of  the  business  career  of  Andrew  Car 
negie,  in  the  Engineering  Magazine  for  June,  1901,  states,  after  pointing  out 
various  experimental  stages  of  the  business,— 

"During  this  transition  Mr.  Carnegie  has  frequently  been  called  upon  to  make  large  expendi 
tures  for  new  appliances,  to  replace  those  which  had  been  but  recently  adopted,  and  he  has  done 


ORGANIZATION   AND    COST   FINDING  3 

this  cheerfully,  for  with  him  the  best  is  good  enough  only  until  something  which  promises  a  better 
and  cheaper  product  is  offered.  He  has  willingly  allowed  the  profits  of  the  business  to  be  taken 
year  after  year  for  experiment  and  improvement,  whilst  our  friends  across  the  water,  content  with 
the  crude,  anachronic  system  of  by-gone  times,  took  the  dividends  and  kept  the  even  tenor  of  their 
way.  The  corollary  of  this  reduced  to  figures  shows  that  the  United  States  in  1899  produced 
39.25  per  cent.,  Germany  and  Luxembourg  23.20  per  cent.,  Great  Britain  18.44  per  cent.,  and 
the  Carnegie  Works  10  per  cent,  of  the  steel  output  of  the  whole  world,  the  Carnegie  production 
being  equal  to  more  than  one-half  of  the  aggregate  output  of  all  the  works  of  Great  Britain." 

A  cost  system  is  often  looked  upon  as  a  means  of  obtaining  the  cost  of  pro 
duction  only.  This  is  a  wrong  impression,  as  the  information  obtained  is  ex 
tremely  valuable  in  other  ways.  In  addition  to  being  a  means  of  ascertaining  the 
cost  of  production,  it  also  furnishes  the  necessary  data,  incident  to  reducing  the 
cost,  either  by  eliminating  certain  unnecessary  expenses,  or  increasing  the  pro 
duction  of  various  departments  where  inefficiency  as  indicated  by  the  system  is 
shown.  Information  of  this  character  also  constitutes  the  basis  for  the  inaugurat 
ing  of  more  modern  machines  in  lieu  of  antiquated  equipment,  or  for  the  installa 
tion  of  machines  and  added  equipment  necessary  to  increase  the  capacity  of 
certain  departments,  so  as  to  effect  a  working  balance  between  the  various  oper 
ating  departments,  and  make  the  production  of  the  factory  equal  in  all  depart 
ments.  This  will  be  the  means  of  preventing  a  great  deal  of  lost  time  in  the 
factory,  which  is  one  of  the  principal  losses  in  any  business. 

In  addition  to  all  this,  it  is  extremely  valuable  as  a  guide  to  the  selling  de 
partment.  The  author  has  frequently  been  asked  this  question  by  manufacturers: 
"Suppose  I  obtain  the  true  cost  of  every  article  I  manufacture,  and  find  that 
the  cost  of  producing  certain  articles  cannot  be  decreased,  what  good  would  the 
cost  system  be  to  me?"  Assuming  that  the  first  statement  is  correct,  and  that 
after  making  every  effort  with  this  end  in  view  it  is  definitely  determined  that 
the  cost  of  the  article  cannot  be  reduced  materially,  the  advantage  to  the  sales 
department  in  such  an  instance  would  be  invaluable.  It  is  a  well-known  fact 
that  certain  articles,  on  account  of  competition  and  other  conditions,  have  to  be 
sold  either  at  cost  or  at  an  actual  loss.  Even  so,  who  can  question  the  value  of 
definite  knowledge  of  the  cost  of  the  article  to  the  sales  department?  With  this 
information  representing  actual  facts,  it  would  be  possible  to  push  the  sales  of 
the  articles  where  it  is  known  that  an  actual  profit  will  be  made,  whereas  if  the 
article  must  be  sold  at  cost  or  at  an  actual  loss,  naturally  the  sales  department 
will  sell  as  few  of  such  articles  as  possible.  In  some  establishments  the  salesmen 
are  paid  a  percentage  on  certain  articles  sold  according  to  the  amount  of  profit 
derived  from  the  sale  of  such  articles;  and  where  articles  are  sold  at  an  actual  loss 
no  commission  at  all  is  paid  to  the  salesmen.  The  rate  of  percentage  may  be 
regulated  according  to  the  proportion  of  profit  derived  from  the  sale  of  the 


4  FACTORY   ORGANIZATION   AND    COSTS 

article,  and  in  cases  where  there  is  no  profit,  then  either  a  very  small  commission 
is  paid  or  none  at  all. 

A  factory  cost  system  is  the  result  of  not  being  able  to  obtain  this  information 
in  any  other  manner.  Take  a  line  of  manufacturing  which  in  its  early  days 
started  with,  say,  a  half-dozen  men,  with  the  owner  of  the  business  as  foreman, 
superintendent,  salesman  and  executive.  The  owner,  in  this  instance,  would 
work  side  by  side  with  his  employees  a  sufficient  number  of  hours  each  day  to 
enable  him  to  keep  in  close  touch  with  all  the  workings  of  his  business,  and  the 
eye  and  brain  could  absorb  all  the  details  without  the  aid  of  such  a  system.  Now 
let  us  assume  that  this  business  grows,  and  more  workmen  are  employed.  The 
owner  hires  a  foreman,  and  devotes  practically  his  entire  time  to  the  selling  and 
administrative  branches  of  the  business.  The  result  is  that  he  loses  the  knowl 
edge  of  details  in  connection  with  his  factory,  and  now  receives  this  information 
through  his  foreman,  second  hand.  The  business  further  advances;  more  fore 
men  are  required  to  attend  to  the  supervision  of  the  various  departments  of  the 
factory,  and  a  superintendent  is  secured  to  supervise  all  of  those  various  depart 
ments  and  the  foremen.  The  details  of  the  factory  have  multiplied,  step  by 
step,  and  now  the  owner  can  observe  the  workings  of  his  business  only  in  their 
general  aspect. 

Thus  it  is,  that  the  necessity  for  the  introduction  of  a  cost  system  at  this 
point  is  made  manifest  in  order  to  supply  the  manufacturer  with  the  information 
requisite  to  the  operation  of  an  increased  business,  and  to  take  the  place  of  the 
personal  touch  he  formerly  had  with  its  details  in  the  early  days  of  his  operations, 
but  now  beyond  his  personal  supervision. 

The  manufacturer  who  does  not  keep  constantly  in  mind  that  the  informa 
tion  furnished  by  a  cost  system  provides  him  with  the  means  of  reducing  the 
cost  of  production  in  any  of  its  details,  is  losing  the  principal  element  of  its 
value.  The  man  with  the  proper  organization  and  system,  furnishing  him  with 
the  knowledge  of  details  incident  to  the  operation  of  his  business,  is  in  a  position 
to  shape  the  policy  of  the  enterprise  in  a  definite  manner,  and  in  a  way  that  is 
entirely  out  of  the  question  for  those  who  drift  along  from  day  to  day  and  year 
in  and  year  out  with  the  only  hope  in  view  that  somehow  things  may  come  out 
all  right  in  the  end. 

Those  who  are  now  carrying  on  operations  sufficiently  well  to  yield  fairly 
good  dividends  on  the  capital  invested,  are  often  disposed  to  let  well  enough 
alone.  This  is  a  great  mistake,  as  in  almost  any  plant  there  are  leaks  that  a 
proper  system  and  organization  would  at  once  bring  to  light,  and  the  elimination 
of  these  leaks  very  often  results  in  making  the  dividends  formerly  regarded  as 
satisfactory  look  rather  small. 


ORGANIZATION   AND   COST   FINDING  5 

There  is  another  element  that  should  be  considered,  and  that  is  the  changes 
in  the  conditions  of  manufacturing,  and  the  product  manufactured.  The  author 
has  frequently  noticed  many  instances  in  plants  where  the  system  in  use  was 
impractical  and  entirely  inadequate  owing  to  new  conditions  of  manufacture. 
It  frequently  happens  that  one  particular  article  or  line  of  product  will  be  manu 
factured  where  the  processes  are  all  the  same,  and  then  later  the  business  will 
be  changed  to  the  extent  that  new  articles  will  be  added,  necessitating  different 
methods  of  operating  and,  in  certain  cases,  different  equipment,  all  of  which 
alters  the  entire  conditions  of  manufacturing.  Consequently,  under  these  cir 
cumstances,  a  system  that  was  apparently  suitable  to  the  former  conditions  is 
entirely  impractical  under  the  changed  conditions.  And  yet  in  most  cases  the 
same  system  is  used,  whereas  it  should  be  changed  materially  in  order  to  obtain 
accurate  results. 

No  well-informed  manufacturer  will  question  the  statement  that  there  are 
leaks  and  weak  spots  in  every  establishment,  regardless  of  the  length  of  time  the 
business  has  been  established.  It  will  also  be  admitted,  that  without  a  systematic 
organization,  it  is  impossible  to  ascertain  the  extent  of  these  leaks,  where  they 
occur,  and  the  cause.  That  such  leaks  in  manufacturing,  due  to  various  causes, 
interfere  with  the  efficiency  of  the  factory  and  are  a  direct  hindrance  to  the 
growth  of  the  establishment,  will  be  admitted  by  any  one  conversant  with  the 
operation  of  a  factory  on  systematic  lines.  An  effort  should  be  made  by  every 
manufacturer  to  determine  exactly  where  these  leaks  and  weak  spots  exist,  and 
endeavor  to  remove  the  cause,  regardless  of  any  cost  within  reason. 

As  long  as  these  conditions  exist,  a  competitor,  operating  under  more  favorable 
conditions  with  a  better  organization  and  system,  can,  and  will,  undersell  and 
slowly  but  surely  gain  the  trade  of  the  less  fortunate  operator,  or  rather  less 
progressive,  until  the  foundation-stone  of  a  once  paying  and  promising  business 
is  undermined  and  possibly  ruined.  There  is  only  one  way  to  eliminate  such 
defects,  and  that  is  by  a  systematic  method  of  obtaining  the  information  in  a 
complete  and  absolute  manner,  showing  just  where  these  defects  exist,  and  an 
accurate  cost  system  and  proper  factory  organization  are  the  only  means  by 
which  this  can  be  accomplished.  It  must  be  kept  in  mind  that  these  leaks  mean 
actual  losses  which,  on  the  other  hand,  mean  smaller  profits.  In  certain  lines 
of  manufacturing,  competition  is  so  keen  that  the  difference  of  a  fraction  of  a 
cent  in  the  cost  of  a  single  operation  is  of  great  importance,  and  may  mean  fail 
ure.  Consequently,  guesswork  in  such  instances  is  dangerous,  and  in  any  case 

poor  policy. 

The  well  organized  and  systematized  factory  will  completely  outclass 
duction  the  factory  conducted  on  an  unsystematic  basis,  resulting  eventually  in 


6          FACTORY  ORGANIZATION  AND  COSTS 

securing  the  trade.  The  management  of  a  factory  without  such  a  system  will 
be  in  the  position  of  struggling  with  problems  that  have  been  solved  by  competi 
tors  who  have  availed  themselves  of  the  information  necessary  in  a  definite  and 
absolute  manner. 

The  expression  is  common:  "Too  much  system! — too  much  red  tape!"  and 
in  every  case  of  this  character  that  has  come  under  the  author's  observation,  it 
has  been  more  a  matter  of  forms  used  than  principles.  The  mistake  is  often 
made,  in  connection  with  systematizing,  to  include  special  forms  for  reporting 
this  or  that  information,  with  the  idea  of  showing  the  workings  of  the  plant,  but 
without  basing  these  forms  on  any  particular  principles,  and  without  providing 
any  means  for  a  general  plan  of  uniting  the  various  units  of  the  system.  Natu 
rally,  no  results  of  any  practical  value  can  be  obtained;  and  under  these  condi 
tions  where  a  great  number  of  forms  are  used,  the  term  "red  tape"  may  be  ap 
plied.  But,  such  methods  should  not  be  confounded  with  a  properly  designed 
system. 

The  number  of  forms  and  the  kind  of  designs  constitute  only  a  secondary 
part  of  the  essential  features  of  any  well  devised  factory  system.  The  main 
features  to  be  considered  are  the  various  divisions  of  cost  and  the  underlying 
principles  applying  to  the  same.  After  this  is  thoroughly  understood,  the  kind 
of  forms  to  be  used  in  the  system  should  be  considered,  and  the  peculiar  rulings 
of  the  forms  to  be  used  will  not  be  so  difficult  to  devise.  The  correct  principles  of 
cost  accounting,  generally  speaking,  are  the  same  in  every  class  of  manufacturing, 
but  the  method  of  application  differs  according  to  factory  conditions.  The  spe 
cial  features  and  peculiar  rulings  of  the  forms  should  conform  to  the  conditions 
existing  in  each  plant. 

It  is  well  to  consider  various  kinds  of  forms,  however,  in  connection  with 
devising  a  system,  as  valuable  information  can  be  gathered  from  the  examination 
of  such  forms  in  connection  with  the  devising  of  new  ones.  To  have  a  great 
variety  of  forms  at  hand,  all  different  in  ruling  and  design  but  all  used  for  the 
same  purpose,  will  naturally  be  of  benefit  to  any  one  in  devising  forms  to  be  used 
for  a  similar  purpose.  For  the  same  reason  that  the  knowledge  of  how  another 
man  conducts  his  business,  would  be  of  assistance  in  conducting  a  similar  busi 
ness.  It  must  be  kept  in  mind,  however,  that  it  is  not  practical  to  borrow  a 
system,  so  to  speak,  from  some  other  plant,  even  in  the  same  line  of  business, 
as  it  is  not  likely  that  a  ready-made  system  will  apply  to  two  different  concerns 
manufacturing  the  same  articles,  due  to  the  fact  that  the  business  is  conducted 
differently,  and  the  system  must  conform  to  the  business,  not  the  business  to 
the  system.  The  individuality  of  every  business  man  is  shown  in  the  manner 
in  which  he  conducts  his  business.  This  is  why  factory  conditions  are  materially 


ORGANIZATION   AND   COST   FINDING  7 

different  in  two  factories  of  the  same  kind.  The  author  calls  to  mind  one  in 
stance  where  he  visited  fifteen  plants  with  the  object  in  view  of  devising  a  uniform 
cost  system  for  all  of  these  plants,  which  were  in  the  same  line  of  business.  After 
a  careful  examination  of  each,  it  was  found  that  the  conditions  of  manufacturing 
and  selling  were  so  different  as  to  make  it  necessary  to  alter  the  general  plan  in 
several  respects,  to  suit  each  and  every  one  of  these  plants. 

Almost  every  writer  on  cost  accounting  makes  the  statement  that  the  element 
which  gives  the  most  real  worry  to  the  manufacturer  in  the  finding  of  accurate 
costs,  is  the  distribution  of  manufacturing  expenses,  sometimes  called  overhead 
charges,  and  in  other  instances,  indirect  expense  or  burden.  The  author  has 
visited  several  hundred  manufacturing  plants  in  the  United  States,  representing 
almost  every  class  of  manufacturing,  and  in  not  one  of  the  plants,  excepting  those 
where  actual  cost  systems  were  installed,  were  the  indirect  charges  properly 
understood  or  accurately  distributed  over  the  manufactured  product. 

When  it  is  considered  that  the  indirect  charges  figure  from  50  per  cent,  to  250 
per  cent,  of  the  direct  labor,  according  to  the  class  of  product,  it  brings  to  mind 
the  fact  that  in  many  instances  these  indirect  charges  and  their  application  to 
the  distribution  over  the  articles  manufactured  constitute  the  most  important 
phase  of  cost  finding.  There  are  various  methods  of  distributing  the  indirect 
charges,  and  the  author  has  outlined  several  of  these  methods  in  this  work. 

It  is  the  author's  desire,  through  the  medium  of  this  volume,  to  benefit  every 
manufacturer,  no  matter  what  plan  or  system  he  may  be  using.  In  order  to 
meet  this  requirement,  several  methods  of  cost  finding  have  been  outlined,  begin 
ning  with  a  method  for  verifying  the  most  crude,  imperfect  method  of  estimating 
costs,  which  could  not  be  called,  in  any  sense  of  the  word,  a  cost  system,  and 
indicating  how  such  methods  can  be  verified  and  the  accuracy  of  the  estimates 
determined.  From  this  point,  these  methods  advance  step  by  step,  until  a  most 
complete  system  of  cost  finding  is  illustrated,  which  is  the  only  SAFE  method 
to  use. 

Most  of  the  methods  in  vogue  to-day  represent  in  result  the  crudest  kind  of  a 
guess,  and  are  unreliable  for  the  purpose  of  reducing  costs.  On  the  other  hand, 
accurate  costs  have  accomplished  as  much  as  new  inventions  have  during  the 
past  few  years  in  the  way  of  reducing  the  cost  of  production.  The  value  of  the 
systematization  of  factories  is  measured  by  the  difference  between  what  is  done 
and  what  can  be  done.  Personal  bias  and  prejudice  have  prevented  the  inaugu 
ration  of  modern  methods  and  machinery,  which  would  have  cast  a  light  on  the 
facts  in  such  a  way  as  to  eliminate  the  feeling  itself,  had  these  methods  been 
inaugurated  before  this  prejudice  had  worked  to  such  an  extent  as  to  destroy 
the  business. 


8         FACTORY  ORGANIZATION  AND  COSTS 

Most  writers  on  cost  accounting  have  outlined  special  methods  that  apply 
only  to  some  particular  kind  of  business,  and  the  manufacturer  in  reading  the 
various  methods,  without  understanding  the  underlying  principles  of  cost  keep 
ing,  is  liable  to  see  in  them  only  a  maze  of  methods  and  system,  all  of  which  looks 
mysterious  and  very  rarely  gives  him  any  intelligent  idea  of  how  to  apply  the 
method  or  system  along  these  lines  to  his  own  business. 

It  is  the  prime  and  central  idea  of  the  author  to  outline  the  principles  that 
compose  cost  accounting,  and  to  illustrate  these  principles  in  different  factory 
systems  which  may  be  recognized  by  every  manufacturer,  so  that  this  mysterious 
subject  of  cost  accounting  will  be  made  plain,  and  thus  enable  him  to  see  clearly 
how  the  principles  of  cost  can  be  applied  to  his  own  business. 

Ingenuity  and  good  judgment  are  the  real  forces  of  systematizers,  and  the 
system  introduced  by  the  manufacturer  which  is  the  most  successful,  is  made  so, 
not  by  adopting  the  rules,  routine,  and  records  of  some  plan  of  others,  but  by 
using  them  to  obtain  ideas  in  applying  the  principles  to  his  own  business. 

It  must  be  recognized  that  it  is  absolutely  necessary  to  have  certain  funda 
mental  information  as  to  factory  workings,  if  the  executive  is  to  intelligently 
control  these  operations.  The  plan  that  provides  for  gathering  this  information 
in  the  most  simple  and  direct  manner  is  where  ingenuity  and  good  judgment, 
coupled  with  conservativeness,  are  shown. 

In  the  majority  of  enterprises  to-day,  the  profits  and  losses  are  only  known 
at  the  end  of  the  regular  fiscal  period,  when  an  inventory  is  taken  and  the  books 
closed;  and  even  then  the  result  is  not  necessarily  correct,  inasmuch  as  the 
accuracy  depends  entirely  upon  the  correctness  of  the  inventory,  which  there  is 
no  means  of  checking  or  verifying  in  the  ordinary  systems.  The  result,  what 
ever  it  may  be,  appears  in  the  books  of  accounts  for  the  entire  period  in  one 
amount,  and  admits  of  no  verification  due  to  the  principle  involved.  There  are 
two  important  questions  that  relate  to  this:  first,  are  the  results  apparently 
satisfactory;  second,  are  they  a  disappointment,  and  a  surprise?  Let  us  take 
up  the  first  question,  by  asking  one.  Should  a  result  in  gross  which  is  apparently 
satisfactory  be  accepted  without  question?  A  careful  analysis  of  this  will  result 
in  the  answer,  No.  There  is  absolutely  nothing  in  the  profits  shown  in  this  man 
ner  to  indicate  whether  the  results  should  not  have  been  considerably  more. 
There  may  be  many  articles  made  at  a  loss,  with  the  result  that  the  articles  upon 
which  there  is  a  good  margin  of  profit,  would  be  paying  the  losses  resulting  from 
the  sale  of  the  other  class  of  products.  In  taking  up  the  second  question,  the 
first  query  that  arises  naturally  would  be:  What  am  I  going  to  do  about  it? 
There  is  only  one  way  to  correct  the  fault,  and  that  is  to  locate  it;  and  if  the 
mass  of  detail  that  enters  into  the  production  of  any  plant  is  buried,  owing  to  a 


ORGANIZATION   AND    COST    FINDING  9 

lack  of  records  dealing  with  the  component  parts  of  the  product  during  the  period 
of  six  to  twelve  months  before  results  are  obtained,  this  would  indicate  that  some 
action  is  necessary  in  providing  a  plan  that  will  admit  of  locating  or  determining 
the  cause. 

Perhaps  the  most  important  factor  in  connection  with  system  and  organiza 
tion,  and  that  stands  out  more  clearly  to  the  author  than  any  other,  is  that  one 
which  enables  a  business  man  to  have  laid  before  him  a  monthly  profit  and  loss 
statement  outlined  to  show  how  the  result  is  reached  by  a  proper  classification 
of  his  product.  Compare  for  a  moment  the  difference  between  such  a  statement 
and  the  one  given  at  the  end  of  a  year  without  any  more  information  than  the 
bare  result. 

With  the  statement  at  the  end  of  the  year,  nothing  can  be  done  to  change  the 
result  of  the  preceding  period,  and  only  an  investigation  can  be  made  which  may 
or  may  not  result  in  anything  of  a  definite  character  bearing  on  the  operations  of 
the  new  year.  With  an  analyzed  statement  showing  the  result  of  the  month, 
with  all  of  the  facts  admitting  of  verification,  it  becomes  possible  to  exhibit  mis 
takes  and  losses.  Furthermore,  where  the  results  are  on  the  wrong  side  it  is 
showrn  in  the  first  month,  instead  of  waiting,  as  in  the  old  plan,  for  twelve  months 
to  elapse  before  ascertaining  what  the  result  may  be.  The  executive  may  have 
the  information  at  hand  in  this  instance  to  enable  him  to  weed  out  the  faults, 
and  thereby  gain  eleven  months  of  profit  resulting  from  these  changes,  which 
otherwise  would  be  lost. 

It  is  said,  by  some  writer,  that  system  is  "The  triumph  of  mind  over  matter," 
and  that  to  work  systematically  is  to  work  successfully. 

Mr.  Chas.  U.  Carpenter,  a  well-known  writer  for  the  Engineering  Magazine, 
on  "  Organization  and  Management,"  and  manager  of  a  large  manufacturing 
industry,  makes  the  following  statement  which  it  would  be  well  for  every  manu 
facturer  to  ponder  over: 

"  Where  does  profit  end  and  loss  begin?  The  all  important  question  for  every  manufacturer  to 
ask  himself  is:  'Do  I  know  positively  at  what  figure  my  profit  ends,  and  my  losses  begin  on  each 
one  of  my  products?'  The  commercial  success  of  a  business  often  depends  upon  the  answer  and 
that  answer  is  found  in  the  solution  of  the  problem  of  cost  finding." 


CHAPTER  II 

WAGE    SYSTEMS 

General  Relation  to  Costs — Plans  Treated — Day  Rate — Piece  Work — Differential  Rate — Premium- 
Bonus — Profit  Sharing  and  Stock  Distribution — Choice  of  a  Method — Two  or  More  Methods 
May  Be  Used — Selection  of  Plan  Important— Introduction  of  Wage  Systems  May  Introduce 
a  New  Profession — Co-operation  of  Employer  and  Employee — Individuality  of  Workmen. 

DAY  RATE — Necessary  in  Certain  Class  of  Work — Method  of — Beginning  of — Disadvantages  of— 
No  Incentive — "Soldiering" — No  Uniform  Cost  per  Article — Waiting  Time — Amount  of 
Loss  Resulting  from  Five  Minutes  Lost  Time  per  Day  for  a  Year  of  from  One  to  One  Hundred 
Workmen — Loss  Shown  of  600  Workmen  Losing  an  Hour  Each. 

PIECE  WORK:  Method  of — Great  Care  Required  in  Fixing  Rate — Cutting  Rate  After  Being  Set— 
Dissatisfaction  of  Workmen — Necessity  of  a  Fair  Rate  and  the  Effect  on  Production — Saving 
in  Cost  of  Production  Illustrated — Inspection — How  to  Fix  Rates. 

DIFFERENTIAL  RATE  PLAN:  Method  of — Relation  to  Piece  Work — Effect  on  Workmen — Result  to 
Employer — Schedule  Showing  Results — Differentiating  between  Good  and  Poor  Workmen- 
Quality  of  Work  an  Integral  Feature — Advantages  of. 

PREMIUM  PLAN:  Comparison  with  Piece  Work — Method  of — Less  Opposition  to  Introduction- 
Illustration  of  Working — Schedule  of  Different  Plans  Showing  Result  of  Each. 

BONUS  PLAN:  Method  of — Close  Relation  to  Premium — Fixing  the  Rate — Summary  of  Advan 
tages  of  Premium  and  Bonus  Plans. 

PROFIT  SHARING  AND  STOCK  DISTRIBUTING:  Method  of — Usually  Unsatisfactory — A  New  Method 
of  Distribution  of  Profits — "Human  Element"  in  Installing  any  of  the  Plans. 

IN  the  manufacture  of  an  article,  the  question  of  primary  importance,  and 
the  one  upon  which  all  other  calculations  are  based,  relates  to  the  cost  of  produc 
tion.  This  cost  may  be  separated  by  analysis  into  various  divisions,  depending 
on  how  much  detail  is  wanted  in  the  classification.  Of  these  divisions,  the  labor 
cost  may  be  picked  as  being  the  most  important,  the  most  variable,  and,  in  many 
cases,  the  largest  in  amount.  In  general,  the  labor  cost  increases  proportionately 
to  the  complexity  of  the  article  manufactured.  The  whole  drift  of  modern  manu 
facturing  is  towards  the  decrease  of  production  costs,  a  tendency  easily  explained 
by  the  ever-increasing  keenness  of  competition  alone,  not  to  speak  of  other 
factors. 

In  adapting  his  business  to  this  tendency,  it  is  likely  that  the  manufacturer 
will  meet  with  conditions  which  preclude  the  exercise  of  effective  economy,  along 
many  of  the  lines  of  production  cost.  Being  thus  limited,  he  must  frequently 
look  to  the  cost  of  labor  as  being  that  division  where  he  can  accomplish  the  most 
substantial  results,  when  he  is  confronted  with  the  necessity  of  cutting  down  the 
expense  of  preparing  an  article  for  the  market.  Even  when  this  necessity  is  not 


WAGE    SYSTEMS  11 

felt  so  keenly,  it  goes  without  saying  that  no  manufacturer  should  think  of  neglect 
ing  this  phase  of  production  costs.  It  means  increased  business,  more  profit  on 
investment,  and  greater  advantage  over  competitors  in  the  same  field. 

There  are  two  ways  only  open  to  the  employer  who  would  decrease  the  labor 
cost  of  production.  He  must  either  make  a  direct  cut  in  the  wages  of  the  men, 
or  he  must  find  a  method  by  which  he  can  increase  their  output.  The  former 
way  is  sure  to  bring  dissatisfaction  and  poorer  work  on  the  part  of  the  employees, 
if  it  does  not  result  in  an  actual  tie-up  by  a  strike.  To  accomplish  the  latter, 
and  at  the  same  time  avoid  the  effects  of  the  former,  requires  good  judgment  and 
generally,  a  change  in  the  wages  or  in  the  system  of  paying  them.  In  any  case, 
it  behooves  the  employer  to  study  carefully  the  different  methods  of  wage  pay 
ment,  with  an  eye  towards  selecting  the  one  that  promises  the  best  results  in  the 
particular  circumstances  of  his  business. 

It  is  the  purpose  of  this  chapter  to  present  and  analyze  the  different  methods 
of  paying  wages,  commonly  recognized  in  the  economics  of  the  subject.  These 
methods  or  plans  are  designated  as: 

(1)  Day  Rate. 

(2)  Piecework. 

(3)  Differential  Rate. 

(4)  Premium. 

(5)  Bonus. 

(6)  Profit  Sharing. 

(7)  Stock  Distributing. 

Each  plan  is  subject  to  more  or  less  modification,  and  often  there  is  a  com 
bination  of  the  features  of  two,  such  as  the  Premium  and  Bonus  Plans.  The 
Premium  Plan  may  be  said,  in  this  light,  to  be  a  combination  of  Day  Ra*;e  and 
Piece  Work. 

It  may  be  said  at  the  outset,  that  there  is  no  one  method  described  which  can 
be  recommended  off-hand  as  the  best.  Not  one  of  the  seven  plans  named  but 
has  characteristics  that  make  it  peculiarly  suited,  or  adaptable,  to  certain  condi 
tions.  Conversely,  there  is  not  one  of  the  seven  that  would  not  be  distinctly  out 
of  place,  if  not  quite  impossible,  under  other  circumstances. 

Because  of  this  feature,  it  would  be  quite  beside  the  question  to  place  particu 
lar  emphasis  upon  any  particular  plan,  but  rather,  it  is  the  author's  purpose 
to  describe  and  set  down  the  distinguishing  features  of  each,  and  indicate  the 
general  conditions  which  would  govern  the  selection  of  any  one  of  them.  Further 
than  this,  it  is  hardly  possible  to  go  into  a  general  treatment  of  the  principles 
underlying  the  methods  and  their  application. 


12         FACTORY  ORGANIZATION  AND  COSTS 

When  it  comes  to  the  actual  choice  of  a  wage  system  in  a  manufacturing 
plant,  everything  depends  on  the  particular  circumstances  in  which  the  plant  is 
situated.  The  nature  of  the  product,  as  well  as  of  the  processes  it  undergoes, 
the  general  labor  conditions  of  the  vicinity,  and  any  one  of  several  other  features, 
may  exercise  a  determinative  influence  over  such  a  choice. 

More  likely  than  the  adoption  of  any  single  method  is  the  choice  of  two  or 
more,  where  one  is  applied  to  one  part  of  the  plant  and  the  other  to  another 
part.  This  is  very  common  in  practice,  and  often  three  or  more  methods  are 
used  simultaneously  in  the  same  establishment,  with  a  practical  maximum  of 
benefit  to  all  concerned. 

It  is  no  easy  matter  to  make  the  best  selection  in  actual  practice.  Besides  an 
understanding  of  all  the  different  methods  and  their  individual  characteristics  to 
begin  with,  there  is  required  a  thorough  knowledge  and  analysis  of  local  condi 
tions,  coupled  with  a  wide  knowledge  of  the  experience  of  others  in  the  same 
field.  It  is  not  at  all  improbable  that  this  feature  will  differentiate  a  new  occu 
pation,  the  peculiar  business  of  which  will  be  to  adapt  a  wage  system  to  particular 
factories.  It  offers  great  possibilities  to  men  of  broad  experience  and  analytical 
minds,  skilled  in  the  science  of  cost  finding. 

In  any  case,  the  subject  is  one  with  which  every  employer  should  be  familiar, 
just  as  far  as  possible.  It  is  an  essential  part  of  the  general  knowledge  required 
in  establishing  and  conducting  a  manufacturing  industry  of  the  present  day. 
Nor  should  the  study  of  wages  be  limited  to  the  men  who  manage  or  employ 
labor.  No  one  would  be  likely  to  deny  that  the  great  body  of  workmen  would 
co-operate  better  with  the  employer  if  there  were  a  better  understanding  on 
their  part  of  the  relation  between  production  and  wages  as  one  part  of  the  cost 
of  production. 

The  author  firmly  believes  that  this  co-operation  and  confidence  between 
employer  and  employee  is  becoming  more  and  more  necessary  as  time  goes  on. 
Without  it,  the  absence  of  a  mutual  understanding  is  sure  to  result  in  lose  to 
everybody  concerned.  From  this  point  of  view,  then,  we  may  say  that  the  pur 
pose  of  discussing  wage  systems  is  primarily  to  establish  a  better  relation  between 
the  employer  and  employee,  and  thus  in  the  end  accomplish  what  is  for  the  bene 
fit  of  each,  a  decrease  in  the  cost  of  production  per  article  on  the  one  hand,  and 
a  more  satisfactory  arrangement  in  the  matter  of  pay  on  the  other. 

This  last  includes  opportunity  for  the  workman.  Every  man  should  be 
allowed  to  work  out  his  own  individuality,  always  considering,  of  course,  that  he 
is  one  of  a  group  and  must  act  in  harmony  with  the  others.  The  question  is 
how  best  to  encourage  and  reward  efforts  on  the  part  of  men  to  accomplish  more 
and  better  results.  The  discussion  and  understanding  of  the  methods  of  paying 


WAGE    SYSTEMS  13 

wages,  is  all  the  more  important  now  because  of  the  widespread  unrest  and  dis 
satisfaction  with  existing  conditions.  Men  feel  that  they  are  not  getting  the 
"square  deal,"  that  they  receive  no  reward  for  extra  efforts  and  skill;  and  they 
are  right  in  part,  for  there  is  no  question  but  that  relative  individual  production 
of  workmen  has  not  received  the  attention  it  deserves. 

The  solution  of  the  questions  between  workman  and  employer,  which  are 
attracting  so  much  attention  at  present,  lies  largely  in  the  discovery  and  appli 
cation  of  a  system  of  paying  wages  that  will  appeal  to  both  parties  as  being 
essentially  just,  and  adapted  to  the  ever-varying  conditions  of  our  modern  manu 
facturing  world.  The  following  discussion  of  the  principal  wage  plans  is  written 
with  this  in  mind. 

DAY   RATE 

It  is  fitting  that  the  first  method  treated  of,  should  be  the  one  that  has  been 
most  common  in  the  past  and  that  is  most  in  use  to-day,  viz.,  the  Day  Rate. 
There  are  many  forms  of  labor  where  it  is  practically  impossible  to  install  any 
other  method  of  paying  wages.  These  instances  embrace  some  of  the  highest 
forms  of  labor,  but  for  the  most  part  the  statement  applies  to  those  men  whose 
duties  are  a  matter  of  routine,  and  do  not  result  directly  in  the  production  of 
any  article  or  commodity. 

On  the  other  hand,  it  will  be  shown  clearly  that  many  and  insuperable  dis 
advantages  are  connected  with  the  system  as  a  whole  when  it  is  applied  to  many 
of  the  forms  of  direct  productive  labor.  Not  that  it  does  not  have  a  place  in 
paying  direct  labor,  but,  rather,  its  scope  has  been  extended  far  beyond  the 
limitations  within  which  it  works  with  good  results. 

As  a  method  of  paying  wages,  the  Day  Rate  groups  several  workmen  in  a 
body  and  pays  each  one  a  certain  sum  for  a  certain  number  of  hours'  work,  this 
amount  depending  partly  on  the  skill  called  for,  partly  on  the  locality  in  which 
the  plant  is  placed,  and  partly  on  the  labor  conditions  existing  at  the  time.  The 
system  and  circumstances  surrounding  it  are  so  familiar  to  everybody  interested 
that  any  further  description  would  be  superfluous. 

Its  beginning  goes  far  back  to  the  time  when  labor  was  unclassified  beyond 
the  threefold  division  into  apprentices,  journeymen,  and  master  workmen.     It 
has  come  down  to  our  time  principally  because  it  is  the  simplest  of  all  ways  and 
carries  with  it  the  momentum  of  centuries  of  use.     In  spite  of  the  fact  that  there 
is  not  an  authority  who  now  advocates  it,  except  for  clerical  positions  and  workers 
who  are  under  immediate  supervision,  it  is  undoubtedly  the  most  common  in  use 
One  of  the  most  astonishing  things  in  this  age  of  progress  is  the  di: 
resistance  encountered  in  gradually  superseding  this  system  by  one  that  is  more 


14  FACTORY    ORGANIZATION   AND    COSTS 

just  to  all  concerned,  and  more  effective  in  accomplishing  the  ends  that  both 
employers  and  employees  are  looking  for. 

This  attitude  towards  day  wages,  in  the  productive  divisions  of  factories,  is 
justified  when  its  influence  on  the  workmen  and  the  amount  of  product  they  turn 
out  is  examined.  It  removes  very  largely  the  incentive  that  makes  a  man  do 
his  best  work,  at  his  best  speed.  Unless  a  workman  is  actuated  by  the  hopes  of 
promotion,  which  is  an  exceptional  case,  or  by  the  fear  of  losing  his  job,  he  has 
no  motive  before  him  to  stir  him  up  to  his  best  endeavor.  The  good  and  honest 
workman  receives  the  same  wages  as  the  man  who  "soldiers"  away  his  time  at 
the  next  bench.  The  result  of  all  this  is  to  place  a  premium  upon  a  dead  level 
of  work  that  must  be  maintained  if  the  man  is  going  to  hold  his  job.  It  is  for  his 
benefit  to  work  slowly  and  make  the  order  last  longer,  thus  to  receive  a  maximum 
wage  for  a  minimum  of  work.  Of  course,  this  is  true  only  in  certain  limits,  and 
there  are  exceptional  cases;  but  the  fact  remains  that  this  is  the  whole  tendency 
at  the  time  rate  of  payment.  The  workman  has  little  or  nothing  to  gain  by 
putting  his  heart  in  his  work  and  really  exerting  himself. 

The  result  of  this  condition  is  shown  not  only  in  the  quantity  of  work  turned 
out  but  in  the  quality  also.  Defective  work  usually  carries  no  penalty  with  it, 
until  it  becomes  so  common  as  to  cause  dismissal.  It  is  no  wonder  that  so  few 
improvements  in  work  or  in  processes  originate  in  the  departments  of  a  factory 
where  the  men  are  paid  by  the  day.  "  Lack  of  incentive"  again  is  the  phrase  that 
explains  the  condition  of  general  apathy  that  is  to  be  observed  on  the  part  of  the 
men  towards  their  work. 

In  going  through  shops  and  factories  throughout  the  country  for  years,  the 
author  has,  almost  without  a  single  exception,  been  able  to  point  out  the  men 
who  were  working  by  the  day  from  those  who  were  working  under  some  other 
plan.  There  is  an  entirely  distinctive  atmosphere  about  their  work. 

One  feature  that  is  often  quoted  in  favor  of  the  day  or  hour  rate,  is  that  it 
insures  a  constant  labor  cost,  and  one  that  is  comparatively  simple  to  apply. 
This  overlooks  entirely  the  fact  that  this  uniform  labor  cost  is  nowhere  near  a 
uniform  cost  per  article  made.  The  wages  remain  even,  while  the  product 
varies  from  day  to  day  and  still  more,  as  we  have  seen,  between  workman  and 
workman. 

The  question  now  naturally  arises  as  to  the  conditions  that  make  the  Day 
Rate  desirable  or  necessary.  Since  the  wages  are  based  on  time  purely,  they 
obviously  are  suitable  to  instances  where  the  work  is  a  pure  function  of  time. 
Examples  of  this  are  firemen,  engineers,  inspectors,  watchmen,  bookkeepers,  etc., 
etc.,  whose  work  cannot  be  measured  in  articles  produced.  Practically,  there  is 
no  other  way  of  paying  this  class  of  men,  nor  is  any  other  way  specially  desira- 


WAGE    SYSTEMS 


15 


ble,  as  all  that  is  needed  to  obtain  a  fair  day's  work  in  return  for  the  wages  paid 
is  efficient  supervision. 

There  is  another  class  of  labor,  also,  for  which  no  rate  other  than  a  time  rate 
can  be  easily  determined.  Repair  men,  inventors,  and  men  who  are  planning 
and  constructing  special  machines  are  examples  of  this  class.  A  brief  considera 
tion  of  the  nature  of  their  duties  will  easily  show  why  any  other  rate  than  a  time 
rate  is  practically  impossible,  except  in  special  cases. 

While  these  men  may  be  rated  as  a  class,  it  is  clear  that  as  regards  numbers 
they  comprise  but  a  small  per  cent,  of  the  actual  number  of  workmen  in  the  aver 
age  manufacturing  plant.  For  the  most  part,  special  arrangements  must  be 
made  with  each  man,  based,  as  a  rule,  on  the  time  rate. 

To  one  unacquainted  with  the  conditions  of  our  large  factories,  it  would  seem 
impossible  that  so  much  time  can  be,  and  is,  frittered  away  "soldiering."  Where 
the  Day  Rate  is  in  effect,  not  many  workmen  are  accustomed  to  give  notice  that 
they  are  nearly  out  of  work,  but  rather  they  wait  until  it  is  actually  exhausted, 
after  which  follows  a  waiting  spell  for  new  work  to  be  brought.  But  even  if  this 
is  largely  eliminated  by  efficient  supervision  there  are  numerous  other  ways  by 
which  a  workman  loses  time,  and  which  he  would  take  care  of  if  there  was  any 
thing  to  be  gained  by  so  doing. 

It  is  almost  incredible  how  much  value  such  lost  time  can  amount  to  in  a  large 
factory  in  the  course  of  a  year.  The  accompanying  table  shows  what  five  min 
utes  a  day,  on  an  average,  lost  by  each  employee  amounts  to  in  one  year,  nine 
hours  being  taken  as  a  day's  work;  the  rate  per  day  is  given  in  the  left-hand 
column : 


Rate  of  Wages. 

Loss  by  1 
Employee. 

By  10. 

By  20. 

By  25. 

By  35. 

By  40. 

By  50. 

By  100. 

$1.00  per  day. 
1  25 

$2.90 
3.62 

$29.00 
36.20 

$58.00 
72.40 

$72.50 
90.50 

$101.50 
126.70 

$116.00 
144.80 

$145.00 
181.00 

$290.00 
362.00 

1  50 

4.35 

43.50 

87.00 

108.75 

152.25 

174.00 

217.50 

435.00 

2.00 

5.80 

58.00 

116.00 

145.00 

203.00 

232.00 

290.00 

580.00 

9  »jo 

7  25 

72.50 

145.00 

181.25 

253.75 

290.00 

362.50 

725.00 

3.00 

8.69 

86.90 

173.80 

217.25 

304  15 

347.60 

434.50 

869.00 

Now  five  minutes  a  day  is  an  insignificant  estimate  of  the  time  actually  wasted 
in  a  day  by  men  working  by  the  time  rate.  Tests  have  repeatedly  shown  that  an 
hour  a  day  is  not  an  unusual  amount  of  time  to  be  lost  by  slow  work  and  needles: 
interruptions,  while  the  introduction  of  the  Piece  Work  or  Premium  Plans  has 
opened  the  eyes  of  many  a  manager  to  the  fact  that  an  hour  a  day  loss  is  a  small 
estimate  when  compared  with  what  the  men  might  do  if  they  wished. 


16  FACTORY   ORGANIZATION   AND    COSTS 

Consider  what  this  loss  amounts  to  in  a  year.  Suppose  a  factory  to  employ 
600  men  for  300  working  days  a  year.  In  the  course  of  a  year  the  loss  in  time 
would  aggregate  180,000  hours — that  is,  18,000  days'  work  that  the  factory  does 
not  get,  and  for  which  it  pays  wages.  Taking  20  cents  as  a  moderate  amount 
per  hour,  the  actual  loss  in  wages  paid  out  would  be  $36,000.  These  figures  are 
startling,  but  they  do  not  over  state  the  case  in  many  factories  of  this  size. 

PIECE  WORK 

To  avoid  the  obvious  disadvantages  of  the  day-rate  form  of  wages,  several 
different  schemes  have  been  proposed,  one  of  which,  the  straight  Piece  Work 
plan,  we  shall  now  consider.  On  the  face  of  it,  this  plan  seems  to  be  just  what 
is  needed.  The  employer,  after  making  what  he  considers  a  fair  estimate,  sets  a 
certain  price  on  the  production  of.  an  article,  and  tells  the  workman  to  go  ahead 
and  turn  out  what  he  can;  he  will  be  paid  for  what  he  does.  This  looks  so  fair 
that  it  is  with  considerable  surprise  that  the  investigator  learns  that  this  method 
of  paying  wages  has  in  many  cases  been  accompanied  by  so  much  friction  and 
dissatisfaction  that  conditions  have  been  made  little  better,  if  at  all,  by  its  intro 
duction.  He  also  learns  by  reading  the  literature  of  the  subject  that  many 
managers  and  authorities  on  costs  are  on  record  against  this  method  as  compared 
with  others.  The  question  at  once  arises  concerning  the  cause  of  this.  The 
answer  lies  largely  in  the  lack  of  preparation  for,  and  the  methods  used  in  intro 
ducing  it. 

To  understand  this,  we  may  sketch  an  imaginary  case  which  will  be  sufficiently 
near  the  facts.  An  employer  having  decided  to  introduce  the  Piece  Work  system 
in  a  part  or  the  whole  of  his  plant,  first  sets  out  to  find  what  allowance  he  should 
make  on  each  piece  of  work.  He  and  his  assistants  watch  the  men  and  their 
work  for  some  time  beforehand.  Then  he  makes  what  he  considers  a  fair  allow 
ance  for  increased  production  that  is  due  to  follow  with  the  new  way  of  working, 
and  waits  for  results.  The  rate  of  production  soon  shows  enormous  gains,  and 
instead  of  the  low  per  cent,  he  allowed  in  discounting  the  new  rates,  he  finds  that 
production  has  increased  50  per  cent.,  60  per  cent.,  or  even  doubled  itself  in  some 
cases.  As  a  result,  the  men  who  are  earning,  let  us  say,  $2.75  per  day,  are  soon 
earning  $4.00  or  more  in  the  same  time. 

By  this  time  the  employer  is  liable  to  consider  that  his  employees  have  cheated 
him  in  the  beginning  and  are  now  receiving  altogether  too  much  wages  as  a  result 
of  it;  so  he  proceeds  to  cut  the  rate  per  piece,  and  the  trouble  with  his  workmen 
begins.  They,  on  their  part,  soon  discover  that  they  are  between  two  fires:  if 
they  produce  too  little,  their  wages  are  small ;  and  if  they  produce  too  much  they 


WAGE    SYSTEMS  17 

receive  a  cut,  after  which  they  must  continue  to  work  harder  and  receive  no  more 
pay  than  they  did  formerly.  The  natural  result  of  this  is  an  agreement  between 
the  workmen  of  a  class  to  limit  their  production  to  a  certain  amount  which  they 
consider  safe.  At  this  point  the  Piece  Work  system  has  broken  down  and  failed 
to  give  the  desired  result  for  which  it  was  introduced. 

In  studying  the  above  instance,  two  lines  of  action  are  seen  to  come  in  con 
flict.  The  employer  is  working  for  the  largest  possible  results  for  a  given  wage 
scale,  and  the  men,  naturally,  are  working  to  receive  the  maximum  wages  for 
their  time.  The  former  part  of  this  statement  is  seen  to  be  true  as  soon  as  the 
employer  shows  uneasiness  over  the  large  wages  earned  by  his  men  per  day. 
Ultimately  he  must  have  had  in  his  mind  that  the  wages  would  rise  not  much 
higher  than  before,  or  at  least  not  in  the  same  proportion  as  the  production  in 
creased.  So  he  fails  to  see  where  he  gains  anything  by  his  change  of  methods. 
The  workmen,  in  time,  consider  that  they  have  been  trapped  by  the  cut  in  the 
piece  rate,  and  are  correspondingly  bitter  over  the  situation. 

It  would  seem  that  the  first  necessary  precaution  is  to  set  such  a  rate  that, 
barring  unusual  business  depression  or  some  equally  untoward  event,  it  can  be 
maintained  fixed  and  unchanging.  As  long  as  the  men  fear  a  cut  for  too  much 
production,  they  will  never  produce  to  their  full  capacity.  Once  they  have 
accepted  a  rate  and  have  confidence  that  it  will  remain  as  it  is,  regardless  of 
what  they  may  earn  by  it,  they  will  feel  free  to  do  their  level  best,  and  the  goal, 
maximum  production,  is  at  hand. 

All  this  shifts  the  responsibility  back  a  step  further— namely,  to  the  rate 
determined  per  article.  And  right  here  is  the  crux  of  the  whole  matter.  In  the 
example  given,  it  is  evident  that  there  was  ignorance  of  just  what  the  men  could 
do.  This  is  the  basis  of  the  trouble  in  nine  cases  out  of  ten.  This  ignorance  and 
the  resultant  cutting  of  rates,  has  aroused  such  antagonism,  and  has  spread 
abroad  such  a  bad  reputation  for  the  Piece  Work  plan,  that  now,  when  steps  are 
taken  to  introduce  the  system  in  a  factory,  it  is  fought  tooth  and  nail  by  men 
and  foremen  alike.  The  men  regard  it  as  an  entering  wedge  for  reduced  wages, 
or  as  a  means  of  obtaining  a  greater  amount  of  work  for  the  same  wages, 
foremen,  in  some  cases  supported  by  the  men,  oppose  it  through  sheer  inertia. 
Many  of  them  dislike  new  things,  and  prefer  not  to  have  their  daily  hal 
work  inquired  into  and  disarranged  by  new  methods. 

To  return  to  this  main  point,  it  was  determined  that  the  success  of 
Work  plan  depends,  fundamentally,  on  a  proper  piece  rate,  and  that  one 
maintained  without  cuts.     How  to  fix  this  rate,  is  a  rather  serious  and  di 
question.     The  employer  should  approach  it  in  a  spirit  of  willing** 
more  than  the  ordinary  day  rate  in  effect  for  increased  production.     Just  as 


18  FACTORY    ORGANIZATION   AND    COSTS 

as  he  bases  his  calculations  on  having  the  workmen  earn  about  so  much  a  day 
regardless  of  their  production,  just  so  long  the  Piece  Work  system  will  not  be  a 
success. 

Some  authorities  are  on  record  as  saying  that  no  piece  rate  can  be  maintained 
and  that  cuts  are  necessary,  forced  either  by  a  false  rate  at  the  beginning,  or  by 
the  industrial  situation  that  arises  later.  This  is  looking  at  it  from  the  wrong 
point  of  view  again.  If  a  manufacturer  can  afford  to  pay  a  certain  amount  for 
the  manufacture  of  an  article  now,  he  can  surely  afford  to  pay  the  same  amount 
per  article  when  more  are  produced  per  day.  And  this  by  so  much  the  more, 
because  the  indirect  expenses  vary  comparatively  little  for  the  same  time,  and 
are  thus  divided  up  over  a  larger  number  of  articles  produced. 

Let  us  illustrate  by  supposing  a  manufacturer  to  be  paying  $3.00  a  day  to 
workmen  who  are  turning  out  on  the  average  ten  articles  per  day.  Allowing 
50  per  cent,  of  the  direct  labor  charge  for  overhead  expenses  and  $1.50  for  mate 
rial  cost  of  the  ten  articles,  the  total  cost  is  then  ($3.00  +  $1.50  +  $1.50)  -  10  =  $.60, 
of  which  the  direct  labor  cost  is  $3.00  -  10,  or  30  cents.  Now  let  us  say  that  he 
allows  the  men  the  full  30  cents  per  article,  an  allowance  no  employer  would 
ever  make,  by  the  way,  and  see  what  the  expense  is  when  the  men  increase  their 
product  50  per  cent. — that  is,  to  15  articles  per  day.  The  material  will  now  cost 
$2.25,  and  the  overhead  cost  may  increase  15  per  cent,  of  what  it  was,  that  is, 
to  $1.75.  The  cost  is  now  ($4.50  +  $2.25  +  $1.725)  -15  =  $.56i  Thus  a  very 
conservative  estimate  shows  a  gain  of  3^  cents  to  the  article,  with  50  per  cent, 
greater  production.  An  allowance  of  25  cents  labor  cost  per  article  would  be 
much  nearer  the  actual  facts  in  such  a  case,  in  which  instance  the  above  process 
would  show  51^  cents  net  cost,  or  a  gain  of  8|-  cents  with  50  per  cent,  greater 
production. 

The  point  of  all  this  is,  that  if  the  manufacturer  has  been  able  to  make  profits 
in  the  first  case,  he  can  surely  make  more  in  the  second,  despite  the  fact  that 
the  workmen  are  earning  wages  that  look  large  in  proportion  to  the  old  day  rate. 
To  the  objection  that  such  a  method  leads  to  over-production  or  lack  of  balance 
in  certain  departments,  it  is  only  to  be  replied  that  this  can  be  cured  by  dropping 
inferior  workmen,  or  transferring  men  from  one  part  of  the  shop  to  another. 
However,  the  general  effect  would  be  to  increase  sales,  since  now  the  manufac 
turer  is  in  a  position  to  put  his  goods  on  the  market  at  a  cheaper  price  and  under 
sell  competitors. 

There  is  one  feature  of  piece  work  the  importance  of  which  must  not  be  over 
looked  or  underestimated.  Where  workmen  are  hurrying  to  complete  the  largest 
amount  of  work  possible,  it  is  necessary  to  have  an  inspecting  corps  whose  duty 
it  is  to  pass  on  the  work  submitted.  Otherwise  the  defective  work  due  to  haste 


WAGE    SYSTEMS  19 

would  become  a  formidable  factor  in  the  profit  and  loss  calculations.  The  pres 
ence  of  inspectors  and  the  knowledge  that  any  work  rejected  is  to  be  a  total  loss 
for  the  workman  who  turned  it  in,  is  an  effective  guard  against  careless  and  too 
hasty  work.  It  acts  as  a  regulator  on  the  energy  of  the  shop  and  when  properly 
used  acts  to  combine  the  two  most  desired  ends,  rapidity  of  work  and  carefulness 
in  its  performance. 

In  establishing  the  Piece  Work  plan,  there  must  be  careful  study  and  tests, 
as  to  what  shall  or  can  be  expected.  Any  error  of  estimate  is  sure  to  be  followed 
by  friction.  In  one  case  the  men  can  not  earn  enough;  in  the  other  they  earn 
so  much  that  a  cut  follows. 

No  one  method  of  fixing  this  rate  can  be  recommended  for  all  cases.  There 
is  a  general  agreement  on  one  point,  however,  that  it  is  especially  unsafe  for  the 
manager,  inexperienced  in  the  change  of  systems,  to  make  his  estimates  for  piece 
work  from  the  records  of  what  the  men  have  done  under  the  time  rate  system- 
Every  time  the  production  increases  far  beyond  any  expectation,  jumps  of  40, 
50,  and  60  per  cent,  are  not  at  all  uncommon,  and  where  the  employee  has  a 
chance  to  exercise  ingenuity  in  shortening  processes,  production  often  passes 
beyond  the  100  per  cent,  increase  mark. 

When  it  has  been  decided  to  introduce  piece  work  in  a  factory  where  there 
are  no  exact  records  kept  of  the  work  of  the  men,  the  first  step  necessary  is  to 
make  such  records  from  carefully  observed  tests.  In  doing  this,  it  is  essential 
that  no  knowledge  of  the  purpose  leaks  out.  If  a  man  knows  he  is  being  watched 
and  timed  with  an  eye  to  forming  a  rate  for  piece  work,  he  can  easily  manage  to 
extend  the  time  of  the  operations,  and  this  in  such  a  way  as  to  deceive  any  but 
the  most  skilled  of  observers.  Any  rate  based  on  such  records  is  obviously  false, 
and  will  lead  to  the  difficulties  spoken  of  before. 

Probably  the  best  and  most  accurate  way  is  to  divide  the  handling  of  an 
article  into  simple  operations,  and  fix  a  rate  on  each  one  separately.  Then  the 
sum  of  these  rates,  plus  a  small  percentage  added  for  unavoidable  delays,  will 
determine  the  rate  to  be  placed  on  the  article  as  a  whole.  This  is  not  particu 
larly  difficult  and  does  away  with  the  guess  element.  It  is  especially  necessary 
to  go  through  some  such  analysis  where  the  operations  are  complex  and  include 
considerable  handling  of  the  material. 

Where  the  most  of  the  process  is  automatic  and  by  machinery,  the  actual 
operative  cost  of  the  production  of  the  machine  may  be  found,  which  is  not  such 
a  difficult  operation  as  it  may  seem  to  the  novice.  The  discussion  of  that  feature 
is  to  be  found  in  Chapter  IV,  on  the  New  Machine  Rate.  If  the  product  is  a 
small  article  entirely  machine  made,  the  practical  way  is  to  consult  past  records 
if  available. 


20  FACTORY   ORGANIZATION   AND    COSTS 

The  difficulty  of  rate  fixing  on  any  article,  large  or  small,  does  not  appear  so 
formidable  if  there  is  a  system  of  cost  finding  installed  in  the  factory.  In  this 
case  the  analysis  of  the  different  operations  has  already  been  made,  and  the  data 
for  rate  fixing  are  at  hand  directly  from  the  reports  that  come  in  day  by  day. 
There  is  no  class  of  standard  productive  work  where  the  difficulties  are  prohibi 
tive  of  establishing  one  of  the  accepted  wage  plans,  if  the  work  of  getting  data  is 
undertaken  in  the  right  way.  Experience  has  proved  that  the  Premium  System, 
or  some  form  of  piece  work,  can  be  applied  to  industries  of  great  complexity 
where  all  sorts  of  articles,  large  and  small,  are  being  manufactured. 

DIFFERENTIAL  RATE    PLAN 

Another  plan,  allied  to  the  Piece  Work  system  and  based  on  the  same  principle 
of  paying  for  the  product  turned  out,  has  found  many  enthusiastic  supporters. 
This  is  what  is  called  the  Differential  Rate  plan.  It  is  the  piece-work  method  of 
payment  modified  by  an  application  of  time  rate  to  the  work.  It  offers  for  the 
same  work  a  high  price  for  quick  time  and  perfect  work,  and  low  pay  for  slow 
time  and  imperfect  work.  It  may  be  best  understood  by  illustration.  Suppose  that 
a  workman  receives  27  cents  per  piece,  and  in  a  day  of  10  hours  averages  8  pieces. 
The  employer  tells  him  that  as  long  as  he  continues  to  produce  8  pieces  every 
10  hours,  that  rate  will  continue;  but  if  he  will  finish  10  pieces  perfectly  in  the 
same  time,  he  will  pay  him  29  cents  per  piece,  and  if  he  succeeds  in  making  11 
perfect  pieces  he  will  receive  30  cents  per  piece.  On  the  other  hand,  if  by  reason 
of  slow  or  imperfect  work  he  is  credited  with  only  seven  pieces,  his  wages  will 
drop  to  25  cents  per  piece.  It  does  not  take  much  imagination  to  picture  that 
workman  extending  himself  to  produce  just  as  much  as  possible,  and  at  the  same 
time  taking  great  care  to  see  that  his  work  is  perfect;  for  with  one  piece  imperfect 
and  thrown  out,  his  whole  scale  is  lowered  and  his  hurry  has  been  all  in  vain. 

Turning  to  the  employer's  side,  let  us  see  how  he  is  affected  by  the  different 
cases  stated  above.  The  cost  of  material  may  be  set  down  as  10  cents  an  article, 
and  the  overhead  cost,  as  distributed  over  the  number  of  articles  manufactured 
per  day,  as  $1.50,  when  that  number  is  8.  This  overhead  cost  will  increase  a 
certain  amount  with  the  increased  output.  Let  this  be  1-15  or  6§  per  cent,  for 
an  increase  of  25  per  cent.  This  makes  the  overhead  cost  for  10  articles  $1.60. 
Using  this  as  a  base,  at  a  like  rate,  the  overhead  cost  for  11  articles  would  be 
approximately  $1.64.  It  is  fair  to  assume  that  the  7-piece  item  was  due  to  im 
perfect  work  which  would  not  influence  the  indirect  expense.  Then,  the  follow 
ing  table  represents  the  cost  of  each  article  to  the  manufacturer  and  the  different 
wages  of  the  workman. 


WAGE   SYSTEMS 


21 


No.  of 
Pieces. 

Price  per 
Piece. 

Labor  Cost. 

Cost  of 
Material. 

Overhead  Cost. 

Total  Cost. 

Cost  per  Piece. 

7 
8 
10 

.25 
.27 
.29 

$1.75 
2.16 
2.90 

$  .70 
.80 
1.00 

$1.50 
1.50 
1.60 

$3.95 
4.46 
5.50 

.564 

.55f 
.55 

11 

.30 

3.30 

1.10 

1.64 

6.04 

.54H 

It  will  be  noticed  at  once,  in  studying  this  table,  that  apparently  the  work 
man  gets  the  lion's  share  of  the  profit  resulting  from  this  arrangement.  The 
author  chose  a  liberal  rate  of  increase,  in  conjunction  with  a  very  moderate  over 
head  cost,  for  the  purpose  of  showing  that  even  with  these  factors  against  him, 
the  employer  still  decreases  the  cost  price  per  piece  as  production  increases.  If 
the  above  overhead  cost  had  been  $1.00  more,  as  might  easily  be  the  case,  the 
difference  to  him  in  the  cost  per  piece  would  have  been  much  more  noticeable, 
being  70|,  68  J,  65  and  64  cents  respectively. 

One  commendable  feature  apparent  in  this  plan  of  paying  wages,  is  that  the 
poor  workman  gets  poor  pay,  and  the  good  workman  good  pay.  It  differentiates 
the  grades  of  employees  far  more  effectively  than  the  straight  piece  work.  It  is 
clear,  too,  that  the  shop  really  pays  a  higher  price  for  the  labor  of  the  slow  or 
slovenly  workman  than  for  the  quick  and  accurate  one,  despite  the  difference  in 
the  scale  of  piece  work.  We  see  that  a  manufacturer  can  afford  to  pay  a  higher 
rate  of  wages— more  labor  cost  to  the  article— if  the  shop  will  respond  by  turning 
out  a  proportionately  greater  amount  of  product.  The  effect  of  volume  on  the 
cost  of  production  explains  the  whole  matter.  It  acts  to  distribute  the  indirect 
expenses  over  a  larger  output,  and  so  lessen  the  actual  cost. 

From  what  has  just  been  said,  it  is  easy  to  form  a  general  rule  concerning  the 
introduction  of  the  Differential  Rate  plan.     In  a  factory  or  plant  where  the  indi 
rect  expenses  are  very  large  relatively,  it  is  almost  sure  to  pay;   where  they  are 
relatively  small,  the  advantage  is  more  doubtful,  and  it  is  quite  likely  that  some 
other  method  could  be  introduced  with  better  results  and  greater  profits.     No 
wage  system  ever  devised  is,  or  could  be,  applicable  to  all  plants.     The  best  that 
can  be  done  is  to  lay  down  certain  lines  or  rules  as  a  guide  to  point  towards 
general  direction  in  which  the  proper  plan  may  be  discovered.     Thus  we  see  that 
relatively  large,  indirect  expenses  demand  a  particularly  large  productive  capac 
ity  to  balance  the  cost.     Any  system  that  will  act  to  encourage  this 
even  at  a  sacrifice  of  labor  cost,  is  the  system  needed.     And  since  the 
Rate  plan  is  perhaps  the  most  radical  standard  plan  ever  devised  with  t 
view,  it  seems  particularly  suited  to  such  circumstances. 

The  fact  that  this  system  takes  account  of  the  quality  of  the  work  as 


22         FACTORY  ORGANIZATION  AND  COSTS 

tegral  feature  in  determining  the  rate,  suggests  the  importance  of  the  inspecting 
department  as  a  part  of  the  system.  Without  careful  men,  then,  who  do  their 
work  thoroughly  and  make  all  articles  submitted  measure  up  to  the  standard, 
there  is  danger  that  what  ought  to  be  one  of  the  best  features  may  end  as  a  seri 
ous  handicap  to  the  manufacturer.  With  reference  to  determining  the  rates,  all 
the  remarks  made  on  that  subject  in  the  discussion  of  straight  piece  work  apply 
here,  and  some  of  them  with  added  significance.  The  employer  is  now  dealing 
with  an  exaggerated  form  of  piece  work,  and  any  error  or  mis  judgment  will  surely 
react  with  double  force. 

Summing  up  the  advantages  of  the  Differential  Rate  plan,  we  may  say  that  : 

1.  Wages  are  raised  at  the  same  time  that  cost  is  somewhat  lowered.     It  thus 
promotes  better  feeling  between  employer  and  employee,  without  a  loss  on  the 
part  of  either. 

2.  It  improves  and  holds  uniform  the  quality  of  work  by  means  of  the  super 
vision  employed. 

3.  It  succeeds  in  obtaining  the  practical  maximum  of  production  per  unit 
time. 

4.  It  automatically  sifts  out  the  lazy  and  incompetent,  and  raises  the  whole 
standard  of  workmanship  in  a  plant. 

The  principal  disadvantage  connected  with  it,  lies  in  the  danger  of  making 
ill-judged  rates  at  its  introduction.  The  utmost  skill  and  judgment  are  necessary 
to  the  employer  who  would  use  it.  It  also  calls  for  a  well  organized  supervising 
corps,  the  actual  increase  of  cost  for  this  depending  entirely  on  local  conditions, 
the  nature  of  the  shop,  and  the  then  present  organization  established  there. 

PREMIUM    PLAN 

One  of  the  most  successful  plans  in  practice  is  known  as  the  Premium  Plan. 
It  differs  from  piece  work  methods  by  basing  the  wages  primarily  on  a  time  rate 
instead  of  product,  and  then  paying  extra  rates  for  time  saved  in  the  operations. 
It  resembles  piece  work  in  that  it  presupposes  fixing  a  time  rate  on  the  process 
of  manufacturing  single  articles,  or  in  the  separate  steps  in  such  processes.  The 
fact  that  it  guarantees  a  minimum  wage  at  least,  places  it  in  a  more  favorable 
light  before  employees,  and  often  results  in  less  opposition  on  their  part  to  its 
introduction. 

Besides  this  minimum  wage,  it  provides  for  an  increase  for  increased  effort 
and  skill.  To  illustrate,  suppose  that  a  workman  averages  a  certain  amount  of 
work  in  a  day  of  10  hours,  receiving  28  cents  an  hour.  The  premium  arrange 
ment  provides  that  if  he  accomplishes  the  same  work  in  9  hours  he  is  to  be  paid 


23 

9x28  cents,  or  $2.52  plus  a  certain  sum  for  the  hour  saved,  say  14  cents;  and 
then  there  is  still  the  hour  to  work  and  earn  more.  If  he  saves  two  hours,  he 
receives  8  x  28  cents,  or  $2.24  plus  2  x  14  cents,  or  $2.52  for  the  eight  hours  work. 
Now  even  if  he  earns  no  further  premium  in  the  remaining  two  hours,  his  wages 
will  be  $2.24  plus  2  x  .14  plus  the  wages  for  the  remaining  two  hours  at  28  cents 
per  hour,  or  $.56,  making  a  total  of  $3.08  for  ten  hours  work,  instead  of  the  regu 
lar  pay  of  $2.80.  Evidently,  by  thus  cutting  the  time  of  production  two  hours, 
he  has  saved  the  factory  56  cents,  which  profit  is  then  divided  half  and  half,  or 
in  some  other  proportion  agreed  upon  beforehand.  But  the  employer's  profit 
does  not  stop  with  this  28  cents  on  the  product  itself.  All  that  has  been  said 
before  relative  to  spreading  the  overhead  cost  over  an  increased  output  applies 
here,  and  his  profit  is  28  cents  plus  whatever  is  saved  in  indirect  expense  per 
unit  article.  So  it  may  be  truthfully  said  of  the  Premium  Plan  that  both  wages 
and  profits  go  up,  and  everybody  concerned  gains  thereby. 

The  advocates  of  the  Premium  Plan  claim,  also,  that  it  is  the  most  equitable 
of  any  plan  yet  proposed.  Given  a  certain  productive  increase  in  a  factory,  and 
under  the  Day  Rate  plan,  the  employer  receives  all  the  benefit,  while,  on  the  other 
hand,  under  Piece  Work,  all  or  nearly  all  the  gain  goes  to  the  workmen,  the  em 
ployer  saving  only  in  the  indirect  expense.  Under  this  plan  the  profit  is  divided 
more  evenly,  each  side  receiving  a  gain  somewhat  proportionate  to  its  interests 
involved.  This  can  best  be  analyzed  by  an  arrangement  in  tabular  form.  Sup 
pose  a  factory  under  the  Day  Rate  system,  where  the  men  produce  8  articles  in 
a  day  of  10  hours  at  30  cents  per  hour.  We  are  to  analyze  the  costs  as  the  pro 
duction  increases  25  per  cent.,  or  to  10  articles,  per  day  under  the  stimulus  of  a 
new  wage  system.  It  is  fair  to  assume  that  under  the  Piece  Work  plan,  the  rate 
would  be  32  cents  per  piece,  and  under  the  Differential  Rate  plan,  32  cents  each 
for  8  pieces  and  34  cents  each  for  10  pieces.  Likewise  with  the  Premium  Plan; 
let  the  pay  be  28  cents  per  hour,  with  a  premium  of  14  cents  for  each  hour  saved. 
It  must  be  noticed  that  if  the  workman  produces  at  first  8  articles  per  day  and 
then  10,  he  completes  his  former  production  in  8  hours  and  thus  saves  2  hours 
in  8.  As  the  supposition  is  that  his  increased  rate  is  constant,  this  means  that 
his  gain  in  a  day  of  10  hours  is  2£  hours,  or  25  per  cent.,  which  agrees  with  his 
general  rate  of  increase  as  it  should.  We  may  assume  the  cost  of  material  to  be 
12^  cents  per  article,  and  the  overhead  cost  to  remain  constant  at  $1.50  per  day 
for  a  production  of  8  articles  and  increasing  1-15  or  6§  per  cent,  for  an  increase 
of  25  per  cent,  in  production.  The  increased  production  is  not  given  for  the 
Day  Rate  system,  as  in  the  first  place  the  increase  would  not  take  place,  and,  in 
the  second,  whatever  increase  there  might  be  would  all  go  towards  the  employer's 
profit.  The  results  obtained  under  the  bonus  system  are  incorporated  in  this 


24 


table  for  future  reference.     The  rate  is  taken  as  28  cents  per  hour  at  a  production 
of  8  articles  a  day,  and  32  cents  per  hour  at  10  articles  per  day. 


System. 

No.  of 
Arti 
cles. 

Rate  of 
Payment. 

Labor 
Cost. 

Men's 
Gain 
per 
Day. 

Cost  of 
Material. 

Over 
head 
Cost 

Total 
Cost. 

Cost  per 
Article. 

Reduc 
tion  in 
Cost  per 
Article. 

Reduc 
tion  in 
Cost  for 
100 

Articles. 

Day  Rate.  . 

8 

.30  per  hour 

$3.00 

$1.00 

$1.50 

$5.50 

.6875 

Piece  Work. 

(    8 
(10 

.32  per  piece 
.32  per  piece 

2.56 
3.20 

.64 

1.00 
1.25 

1.50 
1.60 

5.06 
6.05 

.6325 
.605 

.0275 

$2.75 

Differential 

1    8 

.32  per  piece 

2.56 

1.00 

1.50 

5.06 

.6325 

Rate.  . 

1  10 

.34  per  piece 

3.40 

.84 

1.25 

1.60 

6.25 

.625 

.0075 

.75 

(   8 

.28  per  hour 

2.80 

1.00 

1.50 

5.30 

.6625 

Premium..  . 

H 

.14  additional 
for  each  hour 

V3.15 

.35 

1.25 

1.60 

6.00 

.60 

.0625 

6.25 

(     / 

saved 

) 

Bonus  

\  8 

(10 

.28  per  hour 
.32  per  hour 

2.80 
3.20 

.40 

1.00 
1.25 

1.50 
1.60 

5.30 
6.05 

.6625 
.605 

.0575 

5.75 

It  is  instructive  as  well  as  interesting  to  change  the  figures  in  the  above  and 
see  the  effect  on  the  different  items  involved.  The  effect  of  distributing  the 
indirect  expense  over  a  greater  production  is  again  strongly  emphasized.  If  the 
items  in  the  column  "Overhead  Cost"  be  increased,  the  cost  per  article  increases 
in  a  much  slower  ratio  where  the  production  is  10  articles  than  where  it  is  only  8; 
also  the  gain  on  the  cost  per  article  increases  with  the  increased  overhead  cost  in 
every  instance.  It  also  exhibits,  by  changing  the  items  in  the  "  Rate  of  Payment" 
column,  the  limits  within  which  the  labor  cost  may  be  changed  without  resulting 
in  an  actual  increase  in  the  cost  per  article.  Naturally,  in  a  table  similarly  ar 
ranged,  taking  the  data  from  actual  experience  in  a  factory,  there  would  be  con 
siderable  change  in  the  several  items,  but  it  can  be  confidently  asserted  that  the 
table,  with  its  results,  is  relatively  true.  It  then  follows  that  the  advocates  of 
the  Premium  Plan  have  a  very  good  basis  for  the  claim  that  by  this  way  the 
profits  accruing  from  increased  production  are  more  equitably  divided  between 
the  employer  and  the  labor  employed. 


BONUS  PLAN 

The  Bonus  Plan,  for  encouraging  greater  effort  and  skill  by  means  of  a  sliding 
scale  of  wages,  is  a  branch  of  the  Premium  Plan  and  is  related  to  it  much  in  the 
same  way  that  the  Differential  Rate  is  related  to  straight  Piece  Work.  It  is 
based  on  the  same  principle  of  increasing  the  pay  as  the  time  to  do  a  definite 
amount  of  work  is  shortened,  but  instead  of  being  calculated  directly  from  the 
time  saved,  it  takes  the  form  of  an  increase  in  the  hourly  wages  for  the  time 


25 

actually  spent,  the  rate  itself  depending  on  the  per  cent,  of  time  gained.  Thus, 
referring  to  the  foregoing  table,  we  see  that  the  workman  received  28  cents  an 
hour  for  producing  8  articles  in  10  hours,  but  that  this  was  increased  to  32  cents 
an  hour  when  he  raised  his  production  to  10  articles  in  the  same  time.  Funda 
mentally,  however,  the  principle  is  the  same  as  in  the  Premium  Plan,  and  what 
ever  remarks  apply  to  one  plan  apply  also  to  the  other.  They  are  usually  dis 
cussed  together,  and  some  writers  make  no  distinction  between  them,  calling  the 
general  system  by  one  name  or  the  other,  and  sometimes  both  alternately. 

In  introducing  the  Premium  or  Bonus  System,  the  same  caution  must  be  ob 
served  as  with  the  piece  work  systems.  It  is  essential  for  the  factory  owner  to 
be  quite  sure  of  the  speed  which  can  be  attained  beforehand,  or  else  he  may  fall 
into  the  same  error  as  he  who  started  out  with  too  high  a  piece  rate.  There  is  this 
modification,  however,  that  even  if  an  error  is  made  on  the  side  of  too  high  a 
scale,  it  is  a  less  costly  mistake  than  in  piece  work.  This  is  clear  from  the  anal 
ysis,  which  shows  that  the  employer  is  not  working  on  so  narrow  a  margin,  and 
that  the  effects  of  such  an  error  would  be  more  evenly  divided. 

One  principle  stands  out  clearly  in  establishing  the  Premium  or  Bonus  System 
which  relates  to  the  Premium  Rate.  Where  there  is  a  good  deal  of  handling  of 
material  and  very  little  machine  work,  it  is  well  to  make  the  rate  fairly  low  since 
there  will  doubtless  be  a  large  per  cent,  increase  from  the  greater  effort  placed 
where  it  has  the  most  effect.  But  if  the  process  is  mostly  machine  work,  it  will 
call  for  a  much  greater  application  of  skill  and  labor,  to  effect  a  large  increase, 
and  in  this  case  one  can  afford  to  place  a  higher  premium  rate  to  call  forth  this 
skill.  At  best,  the  increase  will  be  comparatively  small  in  contrast  to  the  more 
purely  manual  operations. 

There  has  been  considerable  difference  of  opinion  as  to  where  the  liberality  in 
these  methods  is  to  be  shown,  in  the  Premium  Rate,  or  in  the  time  rate.  The 
settlement  of  this  question  seems  to  depend  mostly  on  the  local  conditions  in 
which  it  is  tried.  In  general,  remembering  that  the  increase  is  going  to  be  beyond 
expectations,  it  would  seem  that  liberality  with  the  time  rate,  coupled  with  a 
smaller  Premium  Rate,  would  better  safeguard  the  employer  against  error.  If  the 
Premium  Rate  is  at  first  too  small,  it  can  easily  be  raised,  but  if  it  be  started  too 
high,  it  cannot  be  lowered  without  coming  into  conflict  with  the  whole  body  of 
employees,  which  must  end  disastrously.  However,  where  the  conditions  are 
such  that  it  will  call  for  relatively  high  skill,  and  much  use  of  brains  to  effect  a 
comparatively  small  increase  of  output,  it  appears  to  be  the  best  policy  to  put 
the  emphasis  on  the  Premium  Rate  directly. 

Summing  up  the  principal  points  concerning  the  Premium  and  Bonus 

may  be  said: — 


26  FACTORY   ORGANIZATION   AND    COSTS 

(1)  In  common  with  piece  work,  the  employee's  reward  is  immediate  as  com 
pared  with  other  schemes,  such  as  profit  sharing  and  stock  distributing.     When 
the  psychology  of  the  average  shop  workman  is  considered,  this  impresses  one  as 
being  no  trivial  point  in  its  favor. 

(2)  The  workman  is  not  confronted  with  a  penalty  for  not  hurrying,  beyond 
the  loss  of  the  "bonus" — and  discharge  when  he  is  clearly  unfit  for  his  place. 
The  guarantee  of  a  minimum  wage  renders  the  installation  of  the  Premium  System 
much  easier,  as  it  does  not  arouse  such  intense  antagonism  on  the  part  of  the 
men.     In  this  sense  it  offers  a  good  transition  to  the  straight  Piece  Work  plan, 
if  that  is  the  goal  in  view,  and  all  the  more  because  it  furnishes  accurate  and 
dependable  experience  in  correct  rate  fixing  for  the  latter  step. 

(3)  It  gives  an  excellent  incentive  for  exertion  if  it  is  understood  that  the  rate 
is  a  fixed  one  and  will  not  be  cut  when  the  employee  is  producing  his  utmost. 

(4)  The  management  does  not  suffer  much  loss,  if,  by  chance,  there  is  an  over- 
estimation  in  favor  of  the  employee.     Thus  it  is  much  less  dangerous  to  experi 
ment  with  than  piece  work. 

(5)  It  provides  for  a  more  equitable  division  of  profits  between  employer  and 
employee. 

PROFIT   SHARING  AND  STOCK   DISTRIBUTING 

Two  other  plans  looking  to  increased  production  and  better  relations  with  the 
labor  element  of  a  plant  are  the  Profit  Sharing  and  Stock  Distributing  schemes. 
Neither  has  been  tried  except  in  isolated  instances,  and  neither  is  likely  to  prove 
of  much  value  unless  introduced  under  peculiar  circumstances  much  different  from 
those  found  in  the  average  large  factory  of  to-day. 

The  former  provides  that  the  workmen  shall  share  in  a  certain  percentage  of 
the  profits  of  the  shop  as  a  whole.  It  is  essentially  unjust,  first,  because  it  pos 
sesses  the  same  fault  as  the  Day  Rate  plan,  in  that  it  does  not  discriminate  between 
good  and  poor  workmen.  Again,  the  profits  or  losses  of  a  factory  generally  de 
pend  a  great  deal  on  factors  clearly  outside  of  the  workingman's  scope,  such  as 
the  efficiency  of  the  selling  force,  business  shrewdness  in  taking  contracts,  etc. 
If  these  result  in  gains,  the  workingman  has  no  particularly  just  claim  on  the 
profits  thereby  derived;  and,  on  the  other  hand,  if  these  policies  result  in  loss, 
he  would  be  the  first  to  remonstrate  against  having  to  help  stand  losses  for  which 
he  was  not  responsible.  In  any  case,  the  rewards  are  too  far  removed  in  the 
future  to  have  any  effective  value  in  inciting  a  keen  interest  in  increasing  the 
production. 

There  is  only  one  practical  way  of  handling  a  Profit  Sharing  plan  in  a  manufac 
turing  industry,  and  that  only  applies  in  certain  cases.  This  plan  consists  of  setting 


27 

a  price  on  every  article  manufactured.  The  factory  is  then  charged  with  only  such 
expenditures  as  relate  directly  to  its  production,  and  over  which  the  factory  man 
agement  has  supervision.  Credit  is  then  given  to  the  factory  at  these  scheduled 
prices  for  all  articles  produced  whether  they  are  sold  or  not.  At  the  end  of  the 
year,  or  when  an  actual  inventory  is  taken,  the  factory  account  in  the  ledger  will 
show  the  factory  profit,  and  will  represent  the  saving  or  difference  between  the 
actual  cost  and  schedule  prices.  The  saving,  according  to  this  plan,  is  distrib 
uted  among  the  foremen  of  the  various  departments  and  in  some  instances 
among  the  employees  as  well,  according  to  the  rate  of  pay  for  each.  A 
penalty,  of  course,  is  provided  for  poor  attendance,  and  other  penalties  of  various 
kinds  may  be  incorporated  in  the  plan  according  to  the  conditions  under  which 
the  plan  is  operated. 

Stock  distributing  is  more  likely  to  be  successful  in  very  small  shops  where 
there  are  not  so  many  intermediaries  between  owner  and  factory  hands.  In  large 
factories  it  is  hardly  practicable,  largely  for  the  same  reasons  that  were  given 
relative  to  profit  sharing. 

This  chapter  on  wage  systems  would  hardly  be  complete  without  some  com 
ment  on  the  "human  element"  in  installing  them.     There  is  no  department  in  all 
business  life  that  so  illustrates  the  saying,  "What's  one  man's  meat,  is  another 
man's  poison."     It  is  hardly  too  much  to  say  that  more  depends  on  the  method 
of  installation  and  the  handling  of  the  men,  than  on  the  merits  of  the  system 
that  is  adopted.     To  be  able  to  handle  a  large  body  of  workmen,  the  manager 
must  understand  fully,  and,  broadly  speaking,  should  be  in  sympathy  with  the 
point  of  view  from  which  his  men  look  at  the  wage  question.     Far  more  is  accom 
plished  by  tact  and  judgment  in  such  cases  than  by  any  other  one  element.     Es 
pecially  is  this  true  to-day,  when  so  many  of  these  schemes  have  gone  down  to 
ruin  because  of  a  lack  of  these  qualities.     Fully  80  per  cent,  of  the  distrust  and 
opposition  to  a  Premium  or  Piece  Work  system  is  the  result  of  failures  due  to 
lack  of  preparation  and  want  of  good  clear  common  sense  in  the  methods  used 
during  and  following  the  installation.     The  systems  outlined  above  are  all  right, 
on  the  whole,  some  being  more  adaptable  to  particular  conditions  than  others. 
The  step  that  remains  is  to  disarm  the  suspicion  of  the  employees  as  a  class,  and 
to  convince  them  of  good  faith  by  meeting  them  half-way  in  this  most  vexatious 
of  problems,  the  adoption  of  a  proper  wage  plan  to  bring  about  incre; 
ductive  activity. 


CHAPTER  III 

ANALYSIS   OF   COST   ACCOUNTING 

Lack  of  Knowledge  of  the  Subject— Actual  Costs— Selling  and  Administrative  Expenses  not  In 
cluded  in  Factory  Costs — Partial  Costs — Central  Idea  or  Principle — Elements  of  Costs — 
Material — Labor — Expense — Analysis  of  Each — Diagram  Illustrating  All  Stages  of  Costs — 
Operating  Department  Explained — Operating  Departments  of  Textile,  Stove  and  Machine 
Shop  Industries — Incorrect  Principles  in  Distributing  Overhead  Charges — Recording  Costs 
by  Operating  Department — Some  Important  Elements  of  Indirect  Charges — Interest  on  In 
vestment — Depreciation. 

ALTHOUGH  the  importance  and  desirability  of  accurate  methods  of  ascertain 
ing  the  cost  of  production  is  generally  conceded,  and  while  much  attention  has 
been  devoted  to  this  subject,  and  large  sums  of  money  expended  annually  in 
perfecting  cost  keeping  records,  there  is  a  general  lack  of  knowledge  in  many 
instances  of  the  principles  involved;  and  the  problem  now  in  hand  is  to  present 
an  analysis  of  the  elements  that  go  to  make  cost,  and  to  indicate  the  lines  along 
which  methods  must  be  devised  to  gather  and  classify  the  facts  that  are  used  in 
its  actual  determination.  The  accuracy  and  effectiveness  with  which  this  is  done 
rests  on,  (1)  the  principles  involved,  and  (2)  the  methods  used. 

Actual  cost  records,  to  be  complete,  must  deal  with  the  raw  material  as  it 
enters  the  factory;  then  with  all  stages  of  operating  to  which  it  is  subject;  and, 
lastly,  with  the  general  expenditures  relative  to  such  operations  until  it  is  shipped 
out  of  the  factory  as  a  finished  product.  They  must  show  primarily  the  final  cost  of 
production  from  the  very  beginning  to  where  the  product  is  turned  over  to  the  selling 
department.  Right  here,  must  be  made  a  vital  distinction  in  the  science  of  factory 
costs.  The  selling  expenses  are  frequently  added  as  a  part  of  the  cost  of  goods, 
whereas,  no  matter  how  large  or  small  such  expenses  may  be,  they  add  nothing 
to  the  value  of  the  manufactured  product.  Commercially  speaking,  the  Sales  De 
partment  is  of  the  greatest  importance,  and  the  expense  connected  therewith  is 
an  important  factor  in  determining  the  price  at  which  an  article  can  be  marketed 
with  profit.  But  this  bears  little  or  no  relation  to  the  cost  of  production,  as  such, 
and  in  a  discussion  of  factory  costs  must  be  set  aside  as  being  distinct  and  outside 
the  sphere  of  investigation.  Factory  cost  ends  with  the  completion  of  the  product. 

Again,  the  records  should  show  the  several  divisions  of  the  final  cost,  which 
may  be  designated  as  partial  costs.  These  include  the  cost  of  the  different  ele 
ments  of  production,  and  also  of  the  different  stages  or  processes  through  which 
the  product  passes.  The  partial  costs  compose  a  very  important  function  of  the 


ANALYSIS    OF    COST   ACCOUNTING  29 

science  of  cost  finding,  since  it  is  principally  by  a  study  of  the  parts  separately 
that  information  is  derived  which  may  lead  to  lowering  the  cost  of  production  as 
a  whole.  Under  this  head,  also,  is  included  the  indirect  expenses,  the  most  com 
plex  and  difficult  feature  to  deal  with  in  the  whole  field.  The  records  should  show 
a  full  classification  of  these  expenses  for  the  equitable  distribution  of  the  whole. 

The  chief  reason,  perhaps,  of  dissatisfaction  with  most  of  the  methods  used  in 
obtaining  costs,  is  that  the  method  does  not  embrace  the  correct  principles,  or 
what  might  be  called  "a  central  idea  or  base,"  upon  which  to  work.  The  results 
very  often  consist  of  merely  scattered  information  with  no  method  in  use  of  gath 
ering  this  information  together,  and  putting  it  into  such  tangible  shape  as  to  be 
of  practical  value.  A  cost  system,  with  all  its  arrangements  for  collecting  infor 
mation,  may  be  likened  to  a  machine  composed  of  many  parts,  where  every  part 
has  its  proper  place  and  must  be  fitted  correctly  with  the  rest,  in  order  that  the 
machine  may  perform  its  functions.  A  single  part  left  out  or  misplaced  will 
interfere  with  its  working  efficiency,  if  it  does  not  render  the  machine  useless. 
So  it  is  with  a  system  of  costs.  The  first  thing,  therefore,  is  to  understand  the 
central  idea  or  principle  involved,  and  then  to  devise  the  forms  for  gathering  and 
assembling  the  information  from  the  factory  under  one  head,  "Final  Costs," 
which  would  then  represent  the  complete  machine.  The  former  part  of  this  is 
comparatively  easy,  as  the  principles  are  neither  complex  nor  difficult.  It  is  the 
application  of  those  principles  that  demands  a  high  grade  of  intelligence  to  admin 
ister,  in  order  to  avoid  confusion  and  useless  labor.  It  is  not  practicable  to  alter 
the  conditions  of  a  plant  to  suit  any  system,  but  the  system  must  be  modified 
and  adapted  to  the  circumstances  peculiar  to  each  individual  factory. 

ELEMENTS   OF   COST 

The  elements  that  comprise  the  cost  in  all  manufacturing  enterprises  are  made 
up  of  three  principal  divisions: — 

(1)  Material. 

(2)  Labor. 

(3)  Indirect  Expense. 

These  divisions  may  then  be  sub-divided  as  follows:— 

( Direct 
Material   <T    ,. 

( Indirect. 

( Direct. 

Labor       <T    ,.      , 
( Indirect. 

Indirect  Expense.  , 

Direct  material  is  that  element  of  material  that  enters  into  the  product  itsell 


30 


FACTORY   ORGANIZATION   AND    COSTS 


and  can  be  charged  accurately  to  the  article.  Indirect  material  consists  of  such 
material  as  factory  supplies  used  in  the  processes,  but  which  do  not  enter  into  the 
product  itself.  These  cannot  be  charged  directly  to  any  one  article,  but  must 
be  distributed  over  the  number  of  articles  affected  by  their  use. 

Similarly,  direct  labor  is  limited  to  that  labor  which  is  actually  expended  on 
producing  the  article  manufactured.  All  forms  of  labor,  such  as  repairing,  hand 
ling,  supervising,  etc.,  that  are  not  engaged  directly  on  the  article  itself,  are  desig 
nated  as  indirect  labor.  As  in  the  case  of  indirect  material,  the  expense  of  this 
non-productive  labor  is  distributed  over  that  part  of  the  production  that  is  indi 
rectly  affected  by  it. 

Indirect  expense,  together  with  indirect  material  and  indirect  labor,  compose 
the  last  element  of  Cost,  which  is  sometimes  called  "Burden"  and  sometimes 
"Overhead  ";  and  this  large  element  of  cost  must  be  distributed  accurately,  by 
some  known  ratio,  over  the  production^  if  correct  costs  are  to  be  obtained. 

Indirect  expenses,  as  a  whole,  consist  of:  (1)  the  indirect  labor;  (2)  indirect 
material  in  the  way  of  supplies;  and  (3)  indirect  expense,  such  as  light,  heat, 
power,  and  maintenance,  insurance,  taxes,  interest,  rent,  depreciation,  and,  in 
short,  any  expense  that  does  not  enter  into  the  product  itself.  These  are  divisi 
ble  into  two  general  classes,  one  of  which  can  be  apportioned  to  certain  products 
or  parts  of  products  because  they  are  incurred  in  a  particular  department  of  the 
factory.  The  other  class  consists  of  such  expenses  as  are  incurred  for  the  benefit  of 
the  entire  plant,  and  must  be  distributed  over  all  departments  on  an  equitable  basis. 

If  the  Selling  and  Administrative  expenses  are  added  to  the  Factory  cost,  the 
cost  of  marketing  the  article  will  be  obtained  and,  if  the  profit  is  added  to  this,  the 
result  will  be  the  actual  Selling  Price.  This  relation  between  the  different  elements 
of  expense  to  a  manufacturer  may  be  illustrated  by  a  simple  diagram,  which,  in  the 
light  of  what  has  been  said,  is  self-explanatory. 


Labor,  50 


Material,  25 


Indirect 
Expense,  50 


Prime  Cost, 
75 


Selling  and 

Administrative 

Expenses,  25 


Final  Factory 
Cost,  125 


Profit,  25 


Total  Cost  to 
Sell,  150 


Selling  Price, 
175 


ANALYSIS    OF    COST   ACCOUNTING  31 

The  cost  of  direct  material  is  a  matter  of  market  price  at  the  time  of  purchase, 
and  by  a  simple  calculation  from  the  amount  of  product  manufactured  out  of  a 
certain  supply  of  raw  material,  this  part  of  the  prime  cost  is  usually  easily  deter 
mined.  Nor  is  the  direct  labor  cost  very  difficult  to  calculate.  In  fact,  in  piece 
work,  it  is  given  directly  on  the  product  without  further  calculation,  unless  there 
is  required  the  addition  of  the  cost  of  several  parts  or  processes  to  find  the  cost 
of  the  whole.  But  in  the  majority  of  cases  it  is  quite  a  different  matter  with 
the  more  indefinite  element,  indirect  expense;  and  when  it  is  considered  that  it 
will  run  from  50  to  250  per  cent,  of  the  direct  labor,  according  to  the  conditions 
of  manufacture,  it  can  be  readily  understood  that  too  great  care  cannot  be  used 
in  the  determination  and  distribution  of  this  division  of  factory  cost. 

The  first  step  towards  making  the  proper  distribution  of  indirect  expense,  is 
to  classify  into  various  divisions  the  items  that  comprise  it,  after  the  manner 
mentioned  previously.  As  a  rule,  this  classification  will  vary  in  the  application 
to  different  factories.  Now,  since  the  distribution  must  be  added  to  the  direct 
labor  and  material,  there  must  be  a  suitable  classification  of  these  elements  also, 
in  order  that  the  theory  may  be  carried  out. 

The  next  step  is  to  divide  the  factory  into  a  number  of  operating  departments, 
according  to  the  processes  of  manufacture.  These  operating  departments,  of 
course,  will  vary  materially,  according  to  the  class  of  manufacturing  and  the 
nature  of  the  product  manufactured.  It  should  be  the  aim,  in  making  these 
divisions,  to  limit  each  department  to  as  simple  and  uniform  operations  as  possi 
ble.  Where  the  processes  in  the  same  department  differ  in  any  appreciable  de 
gree,  the  same  difficulty  arises  that  existed  before  the  classification  was  made, 
and  to  avoid  which  it  was  undertaken  at  all.  The  following  are  given  as  illustra 
tions  of  what  the  operating  departments  might  be  in  three  different  branches  of 
manufacturing. 

In  certain  kinds  of  textile  mills,  the  operating  departments  would  be:- 
Sorting  Carding  Dyeing 

Scouring  Spinning  Boarding 

Carbonizing  Knitting  Finishing 

Drying  Rib  Knitting  Box 

Picking  Seaming  Packing 

Likewise  in  a  certain  class  of  stove  manufactories  there  would  be:- 

Pattern 

Core 

Foundry  (which  may  be  divided  into  two  departments,  as  (a) 

and  (b)  moulding. 


32         FACTORY  ORGANIZATION  AND  COSTS 

Cleaning  Nickeling  Mounting  (Assembling) 

Polishing  Tin  Shop 

In  a  machine  shop,  the  departments  may  sometimes  be  divided  into: — 
Foundry  Pattern  Lathe 

Tool  Polishing  Woodworking 

Paint  Planer  Assembling 

It  is  evident  that  the  cost  of  any  article  in  any  one  department  can  be  ob 
tained  by  the  addition  of  four  distinct  elements  of  cost  in  that  department — viz: 
(1)  Direct  Material;  (2)  Direct  Labor;  (3)  Department  Indirect  Expense,  i.  e. 
the  expenses  that  may  be  charged  to  that  particular  department;  and,  (4)  Gen 
eral  Indirect  Expense,  i.  e.  its  share  of  the  general  indirect  expenses  of  the  plant, 
that  cannot  be  charged  against  a  department  but  must  be  distributed  pro  rata 
over  the  several  departments. 

The  usual  method  of  adding  a  certain  percentage  upon  every  article  manufac 
tured  to  cover  all  indirect  cost  is  wrong  in  principle.  The  indirect  cost  is  not 
the  same  for  each  class  of  articles,  unless  the  factory  limits  itself  to  manufactur 
ing  a  single  uniform  product.  And  even  here,  the  manufacturer  cannot  tell  the 
true  cost  of  a  certain  process  to  which  the  product  is  subject  unless  the  indirect 
expenses  are  distributed  over  the  several  departments  as  outlined  above.  Some 
departments  have  more  indirect  expenses  than  others.  For  instance,  the  number 
and  salary  of  foremen  may  be  greater  in  one  department  than  in  another,  or  one 
department  may  require  extra  floor  space,  etc.  And,  in  the  same  manner,  such 
items  as  indirect  labor,  power,  and  supplies  vary  considerably  in  different  depart 
ments. 

Again,  not  all  articles  pass  through  all  the  departments  or  the  same  depart 
ments,  and  the  charge  for  indirect  expenses  varies  accordingly.  To  illustrate 
this,  let  us  suppose  that  there  are  five  operating  departments  in  a  certain  factory. 
While  one  class  of  product  may  pass  through  all  five  of  these  departments,  an 
other  may  pass  through  only  three.  It  is  evident  that  by  charging  a  fixed  per 
centage  for  indirect  expenses  on  all  articles,  that  the  product  which  passes  through 
only  three  departments  is  being  charged  the  same  percentage  as  the  product 
which  passes  through  all  five.  In  other  words,  the  indirect  expenses  of  the  two 
departments  through  which  this  product  does  not  pass  is  being  charged  against 
its  cost,  the  same  as  if  it  had.  From  this,  it  can  be  clearly  seen  that  unless  the 
indirect  expense  is  applied,  first,  to  the  department  in  which  it  occurs,  and,  after 
this,  by  the  departmental  distribution  of  the  general  indirect  expenses  of  the 
whole  plant,  the  accurate  cost  cannot  be  known.  Otherwise  some  articles  will 
be  charged  with  more  and  some  with  less  expenses  than  they  should  be. 


ANALYSIS    OF    COST   ACCOUNTING  33 

-  Costs  should  therefore  be  recorded  into  each  operating  department  under  the 
general  headings  mentioned  previously — viz:  (1)  direct  material;  (2)  direct  labor; 
(3)  indirect  expense  applying  to  each  department;  and  (4)  that  portion  of  the 
general  indirect  expense  that  is  pro-rated  over  each  department.  Form  No.  15a, 
Chapter  XIX,  will  show  the  manner  in  which  the  department  charges  are  classified 
and  arranged  in  shape  suitable  for  application.  At  the  head  of  the  vertical  col 
umns  are  placed  the  names  of  the  several  departments,  while  the  different  items 
of  expense  are  listed  at  the  left  of  the  sheet.  The  account  of  general  operating 
expenses,  covering  the  indirect  expenses  of  the  plant  at  large,  is  shown  in  the 
lower  section  of  the  Statement,  and  the  distribution  of  the  same  is  recorded  at 
the  right.  The  per  cent.,  or  rate  of  distribution,  determines  the  actual  amount 
for  each  department.  The  items  found  in  this  distribution  blank  are  seen  again 
in  the  upper  form,  each  placed  in  the  proper  department  on  the  line  designated 
as  General  Operating  Expenses. 

Before  taking  up  in  detail  the  subject  of  the  distribution  of  indirect  expenses, 
it  would  be  well  to  review  a  few  of  the  items  that  comprise  such  expenses. 

The  light,  heat,  and  power  of  a  plant  are  usually  distributed  from  one  or  two 
centres,  and,  in  order  to  get  at  the  approximate  cost  for  the  running  of  each 
department,  it  is  necessary  to  arrive  at  some  ratio  with  which  each  department 
is  to  be  charged.  Once  the  ratio  is  obtained,  the  expenditures  relating  to  this 
particular  phase  of  indirect  expense  may  be  divided  among  the  different  depart 
ments.  It  should  be  noted,  however,  that  this  ratio  cannot  be  determined  on  a 
long-time  period,  as  there  are  very  often  considerable  intervals  when  some  of  the 
machines  of  a  department  are  not  running,  and  this  would  make  a  difference  in 
the  actual  distribution. 

Interest  on  investment  in  a  plant  is  very  rarely  included  in  the  cost  of  manu 
facture,  but  should  be  in  all  cases.  The  money  that  is  invested  might  be  drawing 
interest  elsewhere,  without  demanding  the  personal  attention  involved  in  running 
a  plant.  For  example,  if  a  manufacturer  received  a  $5,000  dividend  on  a  factory 
representing  $100,000  capital,  he  is  receiving  practically  nothing  more  than  the 
interest  which  he  might  obtain  with  infinitely  less  risk  and  labor.  In  this  in 
stance,  taking  account  of  the  salary  he  might  earn  elsewhere  without  risk  to  his 
capital,  his  plant  is  actually  running  at  a  loss. 

There  are  two  principal  ways  in  which  interest  enters  as  an  expense, 
the  interest  on  the  amount  of  capital  invested,  represented  by  the  plant  equip 
ment;   and,  secondly,  where  all  or  any  part  of  a  plant  is  owned  subject  to  mort 
gages  or  notes,  the  interest  in  this  case  practically  taking  the  place  of  rent,  an 
being  just  as  much  a  part  of  the  expense  to  be  distributed  over  the  cost  of  pr 
duction  as  rent  would  be.     The  necessity  of  a  proper  distribution  of  this  expense 


34         FACTORY  ORGANIZATION  AND  COSTS 

departmentally  can  readily  be  understood,  when  the  fact  is  considered  that  no 
two  operating  departments  have  equipment  of  the  same  value.  One  department 
may  contain  very  expensive  machines,  while  those  in  another  department  may 
be  inexpensive.  Thus  the  ratio  of  distribution  of  interest  expense  should  be  based 
on  the  then  present  value  of  the  equipment  in  the  different  departments. 

The  next  element  of  indirect  expense — viz:  depreciation,  is  the  most  complex 
and  difficult  to  estimate.  Not  that  the  principles  involved  are  inexact  or  hard 
to  understand,  but  the  actual  rate  of  depreciation  depends  on  so  many  different 
and  variable  factors  that  it  is  out  of  the  question  to  set  better  than  an  approxi 
mate  figure,  which  appears  to  the  judgment  as  being  the  nearest  approach  to 
the  real  conditions  possible. 

It  is  only  necessary  to  mention  a  few  of  the  factors  to  appreciate  the  difficulty 
of  arriving  at  any  definite  results  in  figures.  Some  of  the  more  important  factors 
are:— 

(a)  Nature  and  construction  of  buildings  and  equipment,  together  with  their 
conditions. 

(b)  Deterioration  of  plant  in  general  and  of  machinery  in  particular,  due  to 
wear  and  tear. 

(c)  Amount  spent  for  maintenance  in  the  way  of  repairs  and  renewals. 

(d)  The  invention  of  new  methods  or  new  machines  which  may  or  may  not 
entirely  replace  the  old  ones. 

(e)  Permanency  of  business,  and  likelihood  of  increase  or  decrease  in  the  same. 
Considering  that  each  one  of  these  items  is  complex  in  itself  and  subject  to 

many  conditions,  and  that  there  are  very  many  other  factors  besides,  such  as 
increase  in  value  of  site  of  plant,  amortization,  interest,  peculiar  uses  of  machines, 
property  leased  or  owned,  rate  of  production,  idleness  of  plant,  etc.,  etc.,  all  of 
which  enter  into  the  problem,  it  is  little  wonder  that  manufacturers  hesitate 
about  going  into  the  details  of  this  subject. 

Depreciation,  as  a  term,  may  be  defined  as  loss  in  value.  This  loss  may  be 
due  to  age,  use,  or  a  combination  of  these  two  with  several  contributory  causes. 
Thus,  in  a  factory,  the  amount  of  depreciation  is  the  measure  of  loss  in  invested 
capital.  The  manufacturer  who  calculates  his  profits  without  taking  into  con 
sideration  this  important  feature  is  obtaining  figures  that  misrepresent  the  con 
ditions.  The  plant  has  lost  in  value  during  the  process  of  production,  and  this 
loss  of  value  is  just  as  much  a  part  of  the  cost  of  production  as  wages  or  any  other 
similar  element. 

In  applying  depreciation  to  the  product,  the  same  general  principles  hold  good 
as  in  other  forms  of  indirect  expenses.  As  far  as  possible  the  depreciation  that 
occurs  in  one  department  should  be  charged  to  the  articles  passing  through  that 


35 

department,  the  remaining  depreciation  to  be  pro-rated  over  the  whole  plant  in 
the  same  ratio  as  the  other  general  operating  expenses.  Jt  is  obvious  that  no 
machine  can  depreciate  in  value  more  than  the  original  cost  plus  the  amount 
spent  in  repairs  and  renewal  of  parts.  Therefore,  we  may  say  that  the  purpose  of 
setting  aside  a  depreciation  item  of  expense  is  to  distribute  the  cost  of  a  machine 
over  the  product  it  turns  out,  through  a  period  of  time  estimated  as  the  average 
life  of  that  machine.  And  the  same  is  true  of  depreciation  as  written  off  on  the 
buildings  and  property  of  the  plant  as  a  whole. 

It  is  not  within  the  scope  of  this  book  to  present  a  detailed  analysis  of  the 
factors  of  depreciation  or  to  write  at  length  on  the  technique  of  their  actual  eval 
uation.  The  latter  requires  the  presence  of  an  expert  on  the  premises  of  each 
individual  plant,  and  both  could  furnish  material  for  a  good-sized  volume.  Any 
one  that  is  interested  in  such  an  analysis  is  referred  to  books  that  are  written 
with  that  especially  in  view,  the  best  of  which  is  probably  the  "  Depreciation  of 
Factories/'  a  standard  work  of  authority  by  Ewing  Matheson. 

There  is,  however,  one  factor  mentioned  in  the  list  the  relation  of  which  to 
depreciation  needs  to  be  noted  more  particularly.  This  is  item  (c),  referring  to 
the  amount  spent  for  maintenance  in  the  way  of  repairs  and  renewals.  It  is  clear 
that  whatever  is  spent  in  counteracting  the  results  of  age  and  use  tends  to  lessen 
the  amount  of  depreciation.  Theoretically,  if  a  factory  were  kept  up  to  its  origi 
nal  conditions  by  repairs  and  renewals,  this  cost  would  exactly  counterbalance 
the  depreciation.  However,  this  is  quite  impossible  in  practical  operation.  Re 
pairs  are  made  in  spots,  while  the  remaining  parts  are  allowed  to  drift  along, 
usually  without  affecting  the  efficiency  of  the  plant  to  any  appreciable  extent. 
In  some  cases  the  renewal  of  parts  may  increase  the  value  of  a  machine  to  a  point 
beyond  its  original  cost,  as  where  the  ordinary  cast-iron  parts  are  replaced  by 
steel.  This  extra  expense  should  not  be  considered  as  a  counterbalance  to  depre 
ciation,  but  more  as  an  additional  investment  of  capital.  Just  where  the  line 
between  these  two  aspects  is  to  be  drawn  must  be  determined  by  the  particular 
circumstances. 

With  reference  to  the  relation  between  maintenance  and  depreciation,  the 
following  quotation  is  given  from  Mr.  Matheson's  book,  before  mentioned:— 

"The  question  of  depreciation  cannot  be  separated  from  that  of  maintenance,  and  in  theory 
one  may  be  said  to  balance  the  other.  In  practice  it  is  only  in  certain  cases  that  this  can  be  acted 
on.  In  any  particular  building,  machine,  or  appurtenance,  decay  or  wear  of  some  sort  must  take 
place  in  the  course  of  time;  and  repairs,  in  order  to  compensate  fully  for  the  decline  in  value,  must 
take  the  form  of  renewal.  This  being  the  case,  the  absolute  replacement  of  some  portion  of  the 
plant  every  year  may  thus  maintain  an  average  aggregate  value.  In  only  two  kinds  or  classes  of 
plant,  however,  can  such  an  exact  balancing  of  loss  by  repairs  and  renewals  be  ventured  on;  one, 
where  the  plant  wears  out  so  quickly  as  to  need  replacement  at  short  intervals,  affording  constant 


36  FACTORY    ORGANIZATION   AND    COSTS 

proof,  by  the  mere  continuance  of  working,  that  not  only  the  earning  power  of  the  factory  is  main 
tained,  but  also  the  capital  value;  and  in  a  second  class,  that  of  undertakings  so  large  and  perma 
nent  as  to  afford  a  wide  annual  average  of  deterioration  and  renewal  over  the  whole  plant." 

The  net  result  of  this  relation  between  maintenance  and  depreciation,  as  it 
usually  appears  in  a  cost  system,  is  to  make  separate  items  of  each,  but  to  de 
crease  the  amount  written  off  for  depreciation  by  the  amount  spent  for  main 
tenance,  thus  arriving  at  a  result  equivalent  to  the  gross  depreciation. 

The  usual  method  of  calculating  an  average  depreciation  is  to  "write  off" 
each  year  a  certain  per  cent,  of  the  value  of  the  machine  or  the  plant  as  a  whole, 
thus  providing  for  an  actual  decrease  in  value.  For  instance,  if  the  life  of  a 
machine  was  estimated  at  20  years,  the  rate  of  depreciation  to  cover  the  cost 
would  be  5  per  cent,  a  year,  on  that  cost.  Sometimes  the  rate  is  based  on  the 
net  value  left  after  previous  depreciations,  instead  of  the  original  cost,  which 
results  in  more  of  a  sliding  scale  of  decreasing  values.  The  rate  of  depreciation, 
in  this  case,  would  be  set  at  a  higher  figure  than  in  the  former  instance,  and  the 
greatest  depreciation  would  appear  in  the  first  year. 

When  this  method  is  applied  to  a  plant  as  a  whole,  it  is  known  as  the 
"blanket"  method.  This  is  a  very  simple  way,  practically  applicable  to  very 
simple  conditions;  but  it  breaks  down  and  gives  results  far  from  the  truth  in 
large  and  complex  factories.  For  in  such  cases,  the  depreciation  goes  on  at  a 
very  uneven  rate  in  different  parts  of  the  plant,  and  the  "blanket"  method  then 
fails  to  distribute  this  part  of  the  "burden"  equitably  over  the  product.  The 
results  are  still  further  from  the  truth  when  some  departments  are  working  to 
full  capacity  while  others  are  in  a  state  of  semi-idleness. 

Theoretically,  the  most  accurate  plan  would  be  to  take  a  revaluation  of  all 
the  property  from  time  to  time,  in  which  case  the  difference  between  any  two 
valuations  would  represent  the  depreciation  during  that  period.  Unfortunately, 
there  are  both  the  practical  obstacles  of  the  difficulty  and  labor  of  making  such 
revaluations,  and  the  theoretical  consideration  that  such  a  revaluation  must  be 
estimated  on  a  double  base — viz:  the  condition  and  earning  power  of  the  machine. 

Again,  quoting  from  Mr.  Matheson's  book: 

"There  are  various  methods  of  estimating  the  depreciation  of  a  factory,  and  of  recording  alter 
ation  in  value,  but  it  may  be  said  in  regard  to  any  of  them  that  the  object  in  view  is  so  to  treat 
the  nominal  capital  in  the  books  of  account  that  it  shall  always  represent  as  nearly  as  possible  the 
real  value.  Theoretically,  the  most  effectual  method  of  securing  this  would  be,  if  it  were  feasible, 
to  revalue  everything  at  stated  intervals,  and  to  write  off  whatever  loss  such  valuations  might 
reveal  without  regard  to  any  prescribed  rate.  By  such  a  plan  the  deterioration  due  to  a  period  of 
arduous  working,  or  to  any  average  or  idle  year,  would  be  properly  allotted. 

"Such  a  system,  however,  is  not  feasible,  and  is  adopted  only  in  factories  where  the  trade  and 
plant  are  of  so  simple  or  uniform  a  kind  as  to  allow  it  without  difficulty.  In  some  factories  there 


37 

are  a  few  chief  items  of  plant  which  are  more  important  than  the  rest,  and  whose  condition  and 
value,  therefore,  need  special  consideration.  The  plan  of  valuing  every  year,  instead  of  adopting 
a  depreciation  rate,  though  it  is  the  more  perfect  if  strictly  carried  out,  has  some  disadvantages. 
The  two  leading  considerations  in  such  an  appraisement  are  generally  the  condition  of  the  machine 
or  other  appurtenance,  and  in  its  earning  power.  In  both  these  respects  there  may  be  absolutely 
no  sign  of  deterioration;  a  machine  may  appear,  and  for  all  practical  purposes  be,  as  good  as  new, 
and  may  show  proof  of  it  by  actual  earnings.  Yet,  none  the  less,  its  working  life  is  shortening 
every  year,  and  unless  some  provision  is  made  for  replacement,  a  severe  loss  will  fall  on  the  future. 
And  if,  with  this  in  view,  something  is  written  off  the  value,  though  no  alteration  is  apparent,  then 
the  plan  of  a  depreciation  rate  is  really  adopted.  Manufacturers  who  abstain  in  the  ealier  years 
of  working  from  writing  off  depreciation,  because  they  may  see  no  signs  of  a  lessened  value,  might 
find  it  difficult  to  obtain  the  full  value  from  an  assurance  company  in  the  case  of  destruction  by 
fire;  an  independent  examination  will  show  a  lower  value  than  that  standing  on  the  books  of  account, 
while  if  an  excessive  depreciation  has  taken  place  the  proper  value  is  ascertained  and  restored." 

There  is  still  another  way  of  approaching  the  depreciation  question,  which  is 
by  the  creation  of  a  "Reserve  fund."  This  takes  the  form  of  a  fund  set  aside 
out  of  the  profits,  to  provide  for  all  repairs  and  renewals  as  they  are  needed.  To 
cover  the  estimate  of  depreciation  it  should  be  equal  to  it  in  amount.  This  plan 
has  the  merit  of  providing  for  the  depreciation  of  the  plant  without  changing 
the  figures  of  the  original  valuation  on  the  books.  The  reserve,  so  set  aside,  adds 
nothing  to  the  resources  of  the  company;  it  is  purely  a  method  of  providing  for 
depreciation  charges,  before  they  actually  eventuate  in  expenses  for  repairs. 
The  charges  themselves  are  assessed  on  the  product  and  go  to  increase  the  cost 
of  production  as  a  true  indirect  expense. 

Where  there  is  any  question  as  to  the  rate  of  depreciation,  ^t  is  the  wiser 
course  to  choose  the  higher  rate.  It  may  be  called  a  pessimistic  view,  but  in  case 
of  error  it  is  error  on  the  right  side;  and  any  difference  can  easily  be  corrected 
when  the  time  comes  by  simply  restoring  the  value  where  it  belongs.  In  the 
other  case  the  books  show  a  false  valuation  of  the  plant,  on  the  wrong  side- 
that  is,  over-valuation  for  which  there  is  only  one  cure— viz:  recourse  to  the 
profit  and  loss  account.  Besides  this,  there  is  always  the  element  of  unforeseen 
contingencies  which  may  happen  at  any  time,  and  for  which  a  high  rate  of  depre 
ciation  is  the  best  and  safest  plan  of  self-insurance  for  the  manufacturer. 


CHAPTER  IV 


Application  of— The  Blanket  Method— The  Most  Inaccurate  of  All  Methods— No  One  Method 
Suitable  to  All  Plants— Outline  of  Methods  and  How  Used. 

DIRECT  LABOR  COST — Its  Simplicity — Principle  Involved — Method  of — Illustration  of  Method — 
Incorrect  when  Applied  to  a  Plant  as  a  Whole — More  Accurate  when  Used  Departmentally. 

DIRECT  LABOR  HOURS — Difference  between  this  Method  and  Direct  Labor  Cost — Method  Ex 
plained  by  Illustration  Showing  Comparison  with  First  Method — Where  Incorrect — Condi 
tions  where  Applicable. 

DIRECT  LABOR  AND  MATERIAL — Where  it  can  be  Used — Usually  Inaccurate. 

OLD  MACHINE  RATE — Method  of — Where  it  Breaks  Down — Only  Condition  where  it  can  be  Used. 

NEW  MACHINE  RATE — What  Constitutes  the  Best  Method — Basic  Principles  of — Method  of  Arriv 
ing  at  Rate. 

FIXED  MACHINE  RATE — Principle  of — Method  of  Using  Rate — Supplementary  Rate — Difference 
between  Fixed  and  New  Machine  Rate — Where  it  is  Unsatisfactory. 

NEW  PAY  RATE — Method  and  Principle  of — How  it  is  Obtained — Saving  of  Time  in  Using, 

IN  the  preceding  discussion  on  the  elements  which  comprise  actual  cost,  it 
was  shown  that  indirect  expense,  far  from  being  a  minor  item,  is  quite  on  a  par 
with  material  or  labor  cost,  if  not  actually  more  important.  It  is  unquestionably 
the  most  difficult  to  analyze  and  reduce  to  figures,  and  even  with  this  accom 
plished  the  problem  is  only  half  completed.  The  question  still  remains,  how  to 
apply  this  expense  to  the  manufactured  product  in  such  a  way  as  to  reveal  the 
true  cost  of  production  of  the  separate  articles,  or  classes  of  articles.  Unless  this 
is  determined  approximately  near  the  real  truth,  the  specific  end  or  purpose  of 
all  the  preliminary  steps  is  still  unrealized.  Thus,  the  correct  distribution  of  the 
indirect  expenses  becomes  one  of  the  essential  links  in  the  chain  of  process  used 
in  cost  finding,  without  which  no  results  can  be  depended  on  as  accurate. 

From  time  to  time  various  methods  of  effecting  this  distribution  have  been 
proposed,  varying  widely  in  theory  and  involving  distinctly  different  processes  in 
execution.  They  have  been  devised  for  the  most  part  by  men  who  were  them 
selves  interested  in  certain  lines  of  manufacture,  and  who  have  arrived  at  them 
by  a  study  of  conditions  in  their  own  plant,  or  in  factories  of  the  same 
character. 

It  is  a  perfectly  natural  result  that  there  are  now  several  methods  recognized 
as  standard,  each  one  of  which  is  suitable  to  certain  conditions  while  being  alto 
gether  out  of  place  when  adopted  apart  from  these  conditions.  It  is  an  obvious 
corollary  that  no  one  method  can  be  recommended  for  general  use,  be  it  ever  so 


DISTRIBUTION    OF   INDIRECT   EXPENSES  39 

efficient  in  its  own  field.  The  conditions  of  manufacture  and  the  nature  of  the 
indirect  expenses  incurred  in  the  different  manufacturing  lines  are  entirely  too 
diverse  to  encourage  the  hope  that  such  a  general  method  will  ever  be  dis 
covered. 

When  it  comes  to  the  point  of  actually  choosing  a  method  of  distribution  in  a 
concrete  instance,  the  manufacturer  is  generally  confronted  by  such  a  variety  of 
conditions  and  circumstances,  apparently  peculiar  to  his  own  plant,  that  he  is 
prone  to  abandon  the  case  and  confess  himself  unable  to  cope  with  the  situation. 
The  complexity  of  the  indirect  expenses  as  a  whole,  and  the  difference  in  their 
character  in  different  parts  of  the  factory,  are  the  two  leading  factors  which 
induce  this  feeling  of  helplessness. 

It  is  to  meet  the  latter  difficulty  that  the  plan  of  dividing  the  factory  into 
departments  \vas  devised.  Each  department  should  be  so  formed  that  the  ex 
penses  connected  with  it  may  be  grouped  together  and  treated  departmentally. 
This  suggests  the  idea  that  different  methods  of  distribution  may  be  used  in  the 
same  factory  in  different  departments,  which  is  actually  done  in  some  cases. 
More  will  be  said  on  this  feature  of  distribution  after  the  different  plans  have 
been  described. 

The  difficulty  arising  from  the  complexity  of  indirect  expenses  as  a  whole,  in 
connection  with  different  classes  of  product,  is  not  so  easily  disposed  of.  The 
manufacturer  refuses  to  be  burdened  with  a  complex  system  of  cost-finding,  both 
by  reason  of  expense  and  inconvenience.  What  he  wants  is  a  method,  as  simple 
as  possible,  which  will  give  as  accurate  results  as  could  be  expected.  Unfortu 
nately,  where  the  conditions  are  complex,  the  method  of  dealing  with  them 
must  also  be  more  or  less  complex.  There  is  always  this  conflict  between  the 
desire  for  simplicity  on  the  one  hand  and  accuracy  on  the  other,  which,  in  prac 
tical  life,  is  generally  settled  by  a  compromise. 

In  any  particular  case,  the  most  practical  method  can  be  determined  only  by 
having  a  knowledge  of  all  the  methods  in  general  use  and  the  underlying  princi 
ples  of  the  same,  together  with  an  understanding  of  the  conditions  in  a  factory 
to  which  one  method  or  another  is  particularly  applicable.  It  is  the  aim  of  the 
following  discussion  to  present  the  methods  in  such  a  way  as  to  lead  to  this 
understanding. 

Before  entering  on  the  discussion  of  the  standard  methods,  it  might  be  well 
to  examine  one  of  the  makeshifts  commonly  used  for  figuring  and  distributing 
indirect  expenses.  It  is  based  on  no  principles  of  production  whatever,  and 
frequently  includes  the  selling  expenses  of  the  business  in  addition  to  the  factory 
indirect  expenses  proper.  If  a  name  could  be  given  to  it,  it  might  be  termed  the 
"blanket"  method. 


40         FACTORY  ORGANIZATION  AND  COSTS 

The  total  of  the  general  expenses  of  every  character,  except  labor  and  mate 
rial,  is  divided  by  the  total  of  all  sales  at  the  end  of  the  year,  in  order  to  ascertain 
the  ratio  that  the  general  expenses  bear  to  the  volume  of  business:  this  is  used 
as  a  basis  for  computing  costs  the  following  year.  The  total  of  the  labor  and 
material  cost  of  each  article  is  increased  by  the  ratio  thus  determined,  and  this 
amount  is  set  down  as  the  true  cost  of  the  article. 

It  will  at  once  be  perceived  that  the  average  results  of  one  year  are  applied 
to  the  operation  of  the  succeeding  year,  when  very  possibly  entirely  different 
conditions  may  prevail  and  when  the  volume  of  business  may  increase  or  decrease. 
It  is  also  applied  regardless  of  conditions  or  variations  in  any  of  the  elements  of 
cost. 

Furthermore,  the  ratio  thus  obtained  is  based  on  the  selling  price,  whereas 
in  the  application  it  is  frequently  computed  on  the  cost  price  as  described  above. 
This  is  decidedly  poor  arithmetic,  to  say  the  least,  since  the  cost  price  and  selling 
price  are  entirely  different  elements.  Nor  can  the  manufacturer  escape  this 
trouble  by  waiting  until  the  article  is  sold  and  then  computing  the  indirect 
expense  on  the  sales  price,  as  the  new  selling  price  may  be  different  and  the  old 
ratio  rendered  valueless. 

That  this  method  of  calculating  costs  is  in  actual  use  shows  to  what  extremes 
manufacturers  will  sometimes  be  led  by  the  desire  to  obtain  simplicity  of  method 
and  to  avoid  trouble  and  expense  in  operation.  It  is  difficult  to  believe  any  one 
could  expect  to  obtain  even  approximately  true  costs  by  this  plan. 

Returning  to  the  consideration  of  the  standard  methods  of  distributing  indi 
rect  expenses,  the  reader  is  asked  to  keep  clearly  in  mind  the  distinction  between 
departmental  distribution  and  distribution  over  the  whole. 

The  majority  of  manufacturers  using  any  one  of  these  methods  apply,  it  in 
connection  with  the  rate  obtained,  to  the  production  of  the  entire  plant,  without 
reference  to  the  varying  conditions  governing  the  manufacture  of  different  classes 
of  product.  Much  of  the  following  description  has  been  written  in  accordance 
with  this  general  point  of  view,  and  many  of  the  criticisms  do  not  apply  if  the  use 
of  the  method  is  limited  to  those  departments  where  conditions  are  in  harmony 
with  its  principle  of  operation. 

Seven  methods  of  distributing  indirect  expenses  are  herewith  outlined: — 

No.  1. — DIRECT  LABOR  COST 
Method  of  Distribution:— 

Divide  the  total  amount  of  indirect  expenses  by  the  total  amount  of  direct 
labor,  for  the  same  period  of  time,  to  determine  the  rate  to  be  used  in  the  distri 
bution. 


DISTRIBUTION   OF   INDIRECT   EXPENSES  41 

No.  2. — DIRECT  LABOR  HOURS 
Method  of  Distribution:— 

Divide  the  total  amount  of  indirect  expenses  by  the  total  number  of  produc 
tive  hours,  for  the  same  period  of  time,  to  determine  the  rate  per  hour  to  be  used 
in  the  distribution. 

No.  3. — DIRECT  LABOR  AND  MATERIAL 
Method  of  Distribution:— 

Divide  the  total  amount  of  indirect  expenses  by  the  total  cost  of  labor  and 
material,  for  the  same  period  of  time,  to  determine  the  rate  to  be  used  in  the 
distribution. 

No.  4. — OLD  MACHINE  RATE 
Method  of  Distribution:— 

Divide  the  total  amount  of  indirect  expenses  of  the  entire  plant  by  the  total 
number  of  productive  hours  of  the  operating  machines  (only),  to  determine  the 
average  rate  per  machine  hour  to  be  used  in  the  distribution. 

No.  5. — NEW  MACHINE  RATE 
Method  of  Distribution:— 

Divide  the  amount  of  departmental  indirect  expenses  by  the  total  number  of 
operating  hours,  or  other  unit  of  measure,  for  the  same  period  of  time,  to  determine 
the  rate  to  be  used  in  the  distribution. 

No.  6. — FIXED  MACHINE  RATE 
Method  of  Distribution:— 

Same  as  above,  except  that  the  method  of  arriving  at  the  final  machine  cost 
rate  is  different. 

No.  7. — NEW  PAY  RATE 
Method  of  Distribution:— 

Divide  the  total  amount  of  departmental  indirect  expenses  by  the  total  cost 
of  direct  labor  for  the  same  period  of  time,  to  determine  the  rate  to  be  added  to 
the  regular  individual  pay  rates  of  employees  in  making  the  distribution. 


No.  1. — DIRECT  LABOR  COST 

By  reason  of  its  simplicity,  this  method  of  distributing  indirect  expenses  is  in 
more  general  use  than  any  other.  The  principle  upon  which  it  is  based  is  that 
the  product  increases  in  value  according  to  the  amount  of  labor  added  to  it,  and 


42         FACTORY  ORGANIZATION  AND  COSTS 

that  the  greater  the  amount  of  labor  involved  in  the  manufacture,  the  greater  the 
expense  required  to  supervise  this  labor  and  conduct  the  business. 

This,  considered  as  a  general  principle,  is  true  within  the  limits  of  its  opera 
tion,  but  it  is  seriously  questionable  whether  it  covers  the  whole  field.  There  are 
many  other  factors  in  production  besides  labor,  and  these  are  frequently  of  such 
prominence  that  they  dominate  or  characterize  the  situation.  This  accounts  for 
many  of  the  faults  and  inaccuracies  which  arise  in  carrying  out  the  theory  by 
the  plan  ordinarily  adopted.  Admitting  that  the  labor  involved  in  the  manu 
facture  of  a  product  regulates  to  a  large  extent  the  expense  incurred,  it  is  equally 

true  that  the  principle  should  not  be  applied  to  concrete  instances  in  a  general  or 

.  .*  •£ 
inclusive  way. 

The  plan  generally  adopted  in  operating  this  method  is,  first,  to  ascertain  the 
total  cost  of  direct  labor  actually  charged  to  the  product.  The  total  indirect 
expense  for  the  same  period  is  then  divided  by  the  total  direct  labor.  The  result 
shows  the  per  cent,  or  rate  which  the  indirect  expenses  bear  to  the  total  produc 
tive  labor.  The  distribution  is  then  made  over  the  articles  manufactured  during 
the  period  embraced  in  the  calculations,  by  multiplying  the  total  labor  charged 
to  each  article  by  the  per  cent,  or  rate  of  the  indirect.  In  this  way,  it  will  be  seen 
that  each  article  will  be  charged  with  a  portion  of  the  indirect  expense  of  the 
entire  plant,  according  to  the  cost  of  labor  expended  in  its  manufacture. 

To  illustrate,  let  us  say  that  during  a  certain  month  the  money  spent  for  direct 
labor  amounted  to  $8,000,  and  that  for  the  same  period  the  indirect  expenses 
amounted  to  $5,000.  Dividing  the  indirect  expense  by  the  direct  labor,  the  result 
is  62^  per  cent. ;  that  is,  the  indirect  expenses  amount  to  62Jr  per  cent,  of  the 
direct  labor  of  the  entire  plant.  Thus,  if  the  labor  cost  of  an  article  is  known  to 
be  $1.20,  and  the  cost  of  the  material  50  cents,  the  total  factory  cost  of  the  article 
would  be  $0.50  plus  $1.20  plus  62  £  per  cent,  of  $1.20,  making  the  total  cost  of  the 
article  $2.45. 

It  is  clear  on  the  face  of  it  that  if  the  percentage  is  added  to  the  cost  of  every 
article,  all  this  indirect  expense,  amounting  to  $5,000,  will  necessarily  be  dis 
tributed  among  the  articles  manufactured  and  included  in  the  cost.  The  question 
remains,  however,  Is  the  distribution  accurate?  In  other  words,  can  an  average 
rate  be  applied  to  all  articles  alike  and  results  be  obtained  that  will  be  correct 
for  individual  articles?  The  answer  depends  largely  on  conditions. 

Let  us  assume  that  there  are  several  departments  in  a  factory  which  differ 
among  themselves  in  process  and  equipment.  It  is  almost  certain  that  there  are 
indirect  expenses  peculiar  to  some  of  these  departments  and  which  bear  no  rela 
tion  to  any  of  the  other  departments.  Let  us  further  assume  that  the  product 
manufactured  embraces  a  number  of  articles,  some  of  which  pass  through  all 


DISTRIBUTION    OF    INDIRECT   EXPENSES  43 

departments  and  others  through  certain  departments  only.  It  is  quite  clear 
that,  if  the  per  cent,  of  indirect  expense  is  ascertained  in  each  of  these  depart 
ments  separately,  some  would  show  a  considerably  larger  rate  than  others.  Con 
sequently,  if  an  average  rate  is  used  for  the  entire  plant,  instead  of  a  separate 
rate  for  each  department,  some  articles  will  be  charged  with  an  excessive  amount, 
while  others  will  not  receive  their  due  share  of  the  indirect  expenses  actually 
incurred  in  their  manufacture. 

As  can  be  seen,  this  method,  as  generally  used,  makes  no  allowance  for  differ 
ences  in  departmental  conditions,  and  where  these  differences  actually  exist,  a 
portion  of  the  extra  cost  in  certain  departments  is  shifted  to  the  product  manu 
factured  in  departments  where  the  expenses  are  smaller  in  amount,  and  possibly 
different  in  character;  all  of  which  means  that  an  average  rate  for  an  entire  plant 
can  be  used  in  distributing  indirect  expenses  only  where  the  conditions  are  ex 
tremely  simple.  That  is,  the  product  must.be  limited  to  a  small  variety  of  articles, 
and  the  time  and  labor  cost  expended  on  each  must  be  relatively  the  same  in  all 
departments. 

Another  element  which  is  neglected  in  the  plan  as  described  is  the  difference 
in  the  wages  paid  to  skilled  and  unskilled  workmen.  It  is  not  necessary  that  the 
wages  be  proportional  to  the  true  indirect  expenses.  The  product  turned  out  by 
a  $2.00  a  day  workman  sometimes  incurs  just  as  much  indirect  expense  as  that 
in  the  hands  of  a  man  who  receives  $3.00  or  $3.50  a  day,  the  time  expended  being 
the  same  in  each  case.  That  the  latter  article  should  be  charged  with  50  per  cent, 
or  more  indirect  expense  than  the  former  is,  of  course,  wrong;  but  this  is  a  possi 
ble  occurrence  when  the  plan  is  applied  over  too  many  units  of  production. 

An  exaggerated  form  of  this  inequality  of  charges  comes  to  notice  when  a  low- 
priced  workman  is  placed  at  an  expensive  machine,  and  a  high-priced  workman 
at  a  cheap  machine.  Here  the  product  of  the  cheap  machine  is  ridiculously  over 
charged,  and  the  product  of  the  expensive  machine  proportionately  undercharged, 
owing  to  the  fact  that  the  plan  of  distribution  is  based  on  the  cost  of  labor  and 
uses  an  average  rate. 

Suppose  a  manufacturer  finds  that  he  cannot  meet  competition  on  certain 
articles  without  reducing  the  cost  of  their  manufacture,  or  else  paying  a  loss  out 
of  the  profit  derived  from  the  production  and  sale  of  other  articles.  If  he  accepts 
the  results  of  this  method  as  a  definite  statement  of  costs,  and  believes  his  costs 
to  be  accurate,  he  is  confronted  with  a  problem  which,  from  the  information 
obtainable,  seems  impossible  of  solution  from  a  practical  standpoint.  It  might 
be  supposed  that  the  proper  thing  to  do  is  to  lower  the  labor  cost  by  cutting 
wages  or  hiring  cheaper  workmen,  for  by  so  doing  he  not  only  saves  the  difference 
in  wages,  but  the  cost  of  these  articles  will  be  burdened  with  a  smaller  part  of  the 


44  FACTORY    ORGANIZATION   AND    COSTS 

indirect  expenses.  But  it  would  be  absurd  to  act  on  such  a  suggestion,  since 
lowering  the  wages  of  the  men  has  not  the  slightest  influence  on  the  true  indirect 
expenses,  and  the  hiring  of  cheaper  workmen  would,  in  all  probability,  only  serve 
to  make  them  greater  at  the  very  point  where  they  would  be  shown  to  have 
decreased. 

It  is  distinctly  apparent  that  there  must  be  something  vitally  wrong  with  such 
a  system  of  figuring  costs.  As  before  stated,  the  trouble  lies  in  the  average  rate, 
which  makes  it  necessary  to  overcharge  some  articles  and  undercharge  others. 
Any  factory  using  an  average  rate  based  on  wages  is  obtaining  results  inaccurate 
in  proportion  to  (1)  the  inequality  of  conditions  relating  to  wages,  (2)  the  dif 
ferences  existing  in  the  equipment  and  the  fixed  charges  relating  to  it,  and  (3) 
the  differences  in  the  time  expended  on  different  articles  of  the  same  class. 

If  a  system  based  on  wages  is  to  be  used,  to  distribute  the  indirect  expenses 
equitably  the  wages  must  represent  the  true  conditions  of  production,  and  must 
be  proportionate  to  the  true  cost.  But  this  occurs  only  where  the  labor  is  prac 
tically  uniform  throughout  as  to  product  and  wages  and  time  of  operation.  In 
rare  instances  the  cost  of  labor  might  vary  in  the  different  parts  of  a  factory  in 
proportion  to  the  other  elements  of  cost,  and,  if  such  were  the  case,  an  average 
rate  would  give  sufficiently  accurate  results,  any  slight  error  being  compensated 
for  by  the  simplicity  and  saving  of  time  inherent  in  the  method  itself. 

While  it  has  been  shown  that  accurate  results  can  be  obtained  in  but  few 
cases  where  an  average  rate  of  distribution  over  the  plant  as  a  whole  is  used, 
it  must  be  kept  in  mind  that  if  this  method  of  distribution  is  calculated  depart- 
mentally,  the  objections  that  have  been  so  strongly  emphasized  very  often  disap 
pear,  and  the  results  would  be  all  that  could  be  desired.  This  departmental  plan 
of  distribution  is  used  in  one  of  the  systems  explained  in  Chapter  XXXVIII. 

No.  2. — DIRECT  LABOR  HOURS 

The  difference  between  this  method  and  the  one  first  described  lies  in  the 
different  bases  used  for  the  determination  of  the  rate  of  distribution;  otherwise 
there  is  a  general  similarity  in  outline  and  application.  Both  are  averaging 
methods,  and  the  theory  of  the  labor  hours  method  admits  the  principle  before 
stated,  that  an  article  increases  in  value  in  proportion  to  the  amount  of  labor 
expended  on  it. 

But  it  is  contended  that  time,  and  not  cost,  is  the  essence  of  the  amount  of 
labor,  and  that  the  actual  cost  for  the  time  is  merely  incidental,  or  at  most  pro 
portional.  That  is  to  say,  the  indirect  expenses  of  a  plant  are  in  keeping  with  the 
number  of  employees  and  the  hours  they  work,  rather  than  with  the  wages  they 
receive. 


DISTRIBUTION    OF   INDIRECT   EXPENSES  45 

The  plan  of  procedure  is  to  divide  the  total  indirect  expense  by  the  number 
of  productive  hours,  i.  c.  hours  charged  to  the  product  direct,  and  thus  ascertain 
the  amount  per  hour  to  be  added  to  the  cost  of  the  product  to  cover  indirect 
expenses.  In  the  example  given  to  illustrate  the  operation  of  the  other  method, 
if  the  hours  charged  to  the  product  during  the  month  had  been  40,000,  and  the 
indirect  expenses  $5,000,  the  rate  per  hour  to  be  added  to  the  cost  would  be  12£ 
cents.  Again,  if  the  article  referred  to  had  required  four  hours'  time  in  the  pro 
cess  of  manufacture,  its  cost  would  have  been  50  cents  for  the  material,  $1.20 
for  labor,  and  12£  cents  for  each  hour  consumed  in  the  manufacture  of  the  article, 
making  an  indirect  expense  of  fifty  cents.  Then  the  total  cost  of  the  article 
would  be  $2.20,  instead  of  $2.45  according  to  the  other  method. 

The  first  thing  to  be  observed  is  the  difference  in  the  cost  of  the  article,  and 
a  little  reflection  will  show  that  this  is  not  because  the  illustration  is  not  in  keep 
ing  with  the  possible  facts  in  the  case,  but  that  similar  differences  are  likely  to 
appear  in  the  application  of  the  two  methods  to  almost  any  plant.  In  fact,  it 
would  be  strange  if  the  results  did  agree.  In  the  one  case,  the  product  of  an 
employee  drawing  a  high  rate  of  pay  is  charged  with  a  greater  amount  for  indi 
rect  expense  than  the  product  of  the  lower  priced  employee.  In  the  other  in 
stance,  or  according  to  this  plan,  the  indirect  expense  is  equally  divided  between 
both  high-priced  and  low-priced  employees,  supposing  them  to  work  an  equal 
number  of  hours  per  day.  For  this  reason  the  results  obtainable  from  these 
methods  could  not  agree,  unless  the  rate  of  pay  was  in  exact  proportion  to  the 
time  worked;  and  allowing  this  condition  throughout  the  factory,  both  would 
still  be  in  error,  the  amount  depending  on  the  difference  in  cost  of  the  machine 
used  and  the  nature  of  the  indirect  expense  incurred  in  each  particular  depart 
ment. 

This  brings  up  directly  the  question  of  their  comparative  value.  It  has  been 
shown  that  the  labor  cost  method,  when  applied  to  cover  the  whole  of  a  plant, 
failed  in  three  respects,  in  that  it  did  not  discriminate  between  the  differences 
(1)  in  time  of  operations  on  articles  of  the  same  class,  (2)  in  wages  paid  to  skilled 
and  unskilled  workmen,  and  (3)  in  equipment  and  processes  in  the  several  de 
partments. 

Obviously,  the  labor  hours  method  solves  the  first  difficulty,  since  it  is  based  on 
the  time  element  above  all  else.  The  question  is,  that  by  so  doing  does  it  at  the 
same  time  overcome  the  second  objection  to  the  labor  cost  method?  Mature 
consideration  leads  to  the  belief  that  it  does,  in  some  part  at  least.  All  in  all, 
indirect  expense  is  much  nearer  being  a  function  of  time  than  of  labor  cost.  The 
fact  that  the  expense  connected  with  the  production  of  high-priced  articles  par 
ticularly  is  affected  by  the  difference  in  the  two  methods  has  little  or  no  bearing 


46  FACTORY    ORGANIZATION   AND    COSTS 

on  the  case,  as  such  articles,  as  a  rule,  are  listed  at  high  prices,  either  because  of 
the  cost  of  material  or  because  of  the  high  wages  necessarily  paid  to  skilled  work 
men.  But  these  two  factors  are  comparatively  incidental  as  connected  with 
indirect  expense.  Cheap  material  and  unskilled  labor  may  go  hand  in  hand  with 
long  or  expensive  processes,  and  vice  versa. 

This  conclusion  gains  weight  when  the  nature  of  some  of  the  principal  items 
of  indirect  expense  are  considered.  Take,  for  instance,  rent,  insurance,  interest 
on  investment,  salaries  of  office  force,  light,  heat,  depreciation  of  plant,  and  all 
similar  items  of  the  general  operating  expenses  that  pertain  to  the  plant  as  n 
unit;  these  are  almost  directly  proportional  to  the  time  in  which  they  are  in 
curred.  Nor  is  there  any  warrant  for  claiming  that  power  cost,  supervision, 
machine  depreciation,  etc.,  are  greater  in  those  parts  of  the  plant  where  wages  are 
high  than  where  they  are  low.  In  fact,  supervision  is  likely  to  be  less  where  the 
intelligence  of  the  workman  counts  for  more.  Such  items  as  hand  tools,  intricate 
machinery,  etc.,  which,  as  a  rule,  accompany  high-priced  labor,  are  not  sufficient 
in  amount  to  overcome  the  tendency  of  the  greater  part  of  the  indirect  to  accu 
mulate  proportionally  to  the  passing  of  time. 

In  considering  the  third  point  of  comparison,  i.  e.  the  difference  in  processes 
and  equipment,  the  labor  hours  method  finds  itself  no  better  off  than  the  laboi 
cost  method.  It  has  been  repeatedly  shown  that  the  product  of  large  and  ex 
pensive  machines  should  carry  a  greater  part  of  the  indirect  expenses  than  the 
product  of  smaller  and  cheaper  machines,  because  of  the  differences  in  interest 
on  investment,  depreciation,  power,  floor  space,  etc.  Of  all  this  the  labor  hours 
method  takes  no  cognizance,  and  the  result  is  the  inequality  of  charges  which  has 
been  previously  emphasized.  The  point  holds  true  wherever  these  differences  exist, 
and  cannot  be  avoided  except  by  the  proper  departmentalization  of  a  factory. 

Just  how  serious  this  may  all  be  can  be  better  determined  when  the  sales 
department  undertakes  to  market  the  product.  The  company  will  naturally 
press  the  sale  on  articles  which  appear  to  bring  the  greater  amount  of  profit. 
If  this  appearance  is  not  in  keeping  with  the  facts,  the  whole  policy  of  the  com-' 
pany  may  be  shaped  in  the  wrong  direction.  It  is  a  fact  that  two  manufacturers 
producing  the  same  class  of  product  are  unable  to  compete  with  one  another  in 
certain  lines,  although  they  both  pay  the  same  price  for  material,  employ  the 
same  labor,  and  use  the  same  kind  of  equipment,  and  are  apparently  equally  wel] 
managed.  Any  difference  under  these  conditions,  generally  speaking,  is  trifling; 
yet  one  can  market  a  certain  product  at  a  price  which  appears  to  be  impossible 
for  the  other  to  meet. 

The  fact  of  the  matter  is,  that  these  articles  actually  cost  both  manufacturers 
substantially  the  same  amount  to  produce,  and  the  apparent  difference  is  due 


DISTRIBUTION    OF    INDIRECT    EXPENSES  47 

entirely  to  the  difference  in  the  method  of  figuring  indirect  expenses,  as  the  other 
elements  of  cost  would  probably  be  calculated  by  both  parties  in  the  same  way. 
If  the  same  methods  of  figuring  the  indirect  were  used  by  both,  the  extent  of  the 
competition  would  be  governed  entirely  by  the  skill  in  buying  and  the  skill  in 
manufacturing,  together  with  the  ability  of  the  sales  force,  all  of  which  would 
represent  actual  conditions  existing  in  business,  instead  of  erroneous  ideas  as  to 
the  price  at  which  the  goods  could  or  could  not  be  sold. 

It  is  even  possible,  where  there  is  a  wide  difference  in  the  machines  and  equip 
ment,  and  where  the  margin  of  profit  is  narrow  at  best,  that  a  company  may  be  forc 
ing  the  sale  on  certain  articles  at  an  actual  loss  and  purposely  neglecting  the  sale  of 
other  articles,  supposedly  sold  at  a  loss  but  actually  bringing  in  large  profits,  all  be 
cause  of  an  inaccurate  system  of  distributing  indirect  expenses  over  the  production. 

Returning  to  the  comparison  of  the  two  methods  of  distribution,  the  method 
which  bases  its  distribution  on  labor  hours  would  seem  to  be  nearer  the  truth  in 
the  application  of  its  principle  than  the  method  based  on  labor  cost  —  except  in 
those  cases  where  the  labor  cost  can  be  shown  to  be  proportional  to  the  true  cost 
of  production. 

Its  main  source  of  error  is  at  least  constant,  while  the  additional  source  of  error 
in  the  other  method  includes  a  factor  that  varies  from  time  to  time,  as  the  condi 
tions  of  manufacture  and  rates  of  pay  change,  and  renders  the  result  more  uncer 
tain  and  less  uniform. 

Both  are  imperfect  as  regards  the  consideration  that  if  a  method  of  distribut 
ing  the  indirect  expense  is  to  produce  accurate  results,  the  element  or  elements  on 
which  it  is  based  must  represent  conditions  actually  existing.  It  is  clear  that 
neither  of  these  two  methods  is  based  on  this  principle,  and  they  do  not  represent 
actual  conditions  except  in  two  instances—  viz  :  where  the  product  and  processes  of 
manufacture  are  both  very  simple  and  uniform  in  character,  or  where  the  distribu 
tion  is  made  departmentally.  Whatever  the  principle  of  a  method  is,  the  results 
will  always  be  inaccurate  unless  it  is  applied  in  such  a  way  as  to  identify  the  pro 
duct  produced  in  a  department  with  the  expenses  peculiar  to  that  department. 
No  system  based  merely  on  an  average  percentage  of  the  entire  plant  can  over 
come  this  objection. 

3  —  DIRECT  LABOR  AND  MATERIAL 


The  plan  of  procedure  in  this  method  is  similar  to  that  in  the  labor  cost 
method,  but  uses  the  total  cost  of  labor  and  material  as  the  basis  of  the  calcu 
lations.  It  is  essentially  an  averaging  method,  and  is  rarely  used  in  any  other 
way.  To  be  at  all  successful,  the  material  should  constitute  by  far  the  greater 
portion  of  the  direct  cost.  Where  the  direct  labor  is  a  comparatively  small  part 


48  FACTORY   ORGANIZATION   AND    COSTS 

of  the  prime  cost,  and  the  material  and  indirect  expenses  are  principal  factors, 
this  method  might  seem  practical,  subject  always  to  the  limitations  of  averaging 
methods  in  general. 

When  the  method  is  adopted  where  these  conditions  do  not  exist,  i.  e.  where 
the  direct  labor  constitutes  an  important  part  of  the  cost,  the  results  will  be  fur 
ther  from  the  truth  than  those  obtained  by  any  other  of  the  methods  described. 

No.  4. — OLD  MACHINE  RATE. 

Under  this  plan  the  total  indirect  expenses  are  obtained,  and  also  the  total 
number  of  hours  in  which  machines  have  been  in  operation.  The  total  indirect 
expenses  are  then  divided  by  the  number  of  machine  hours,  thus  obtaining  the 
rate  per  machine  hour  for  indirect  expenses.  This  plan  may  be  used  to  advan 
tage  wherever  the  machines  are  all  of  one  kind — i.  e.  when  they  occupy  substan 
tially  the  same  floor  space,  use  approximately  the  same  amount  of  power,  and 
cost  approximately  the  same. 

When  machines  are  unequal,  the  method  of  machine  hours  breaks  down  pre 
cisely  where  the  method  based  on  total  hours  of  labor  failed;  it  does  not  take 
into  account  the  varying  indirect  expenses  due  to  variation  in  size  and  cost  of 
machines,  and  difference  of  power  to  operate  them. 

It  also  fails  utterly  when  applied  to  factories  where  there  is  a  large  amount 
of  bench-work  coupled  with  machine  work.  For  instance,  the  machine  time 
required  for  an  article  may  be  a  very  small  part  of  the  time  actually  spent  on  it. 
Suppose  that  one  half  the  work  is  done  on  the  machine,  while  the  other  half  re 
quires  hand  labor.  Obviously  the  share  of  the  indirect  expenses  as  applied  to 
this  article  would  be  considerably  less  than  it  should  be,  and  the  extra  cost  must 
be  borne  by  some  article  which  is  wholly,  or  almost  wholly,  machine  made. 

Under  these  conditions  the  article  that  is  all  hand  made  would  bear  no  share 
of  the  shop  charges,  even  though  the  department  in  which  it  is  manufactured 
occupies  a  considerable  part  of  the  floor  room  of  the  shop. 

This  method  is  even  less  reliable  than  the  first  two  methods  described,  unless 
there  is  a  remarkable  uniformity  of  the  machine  work  in  the  factory.  It  can  be 
used  effectively  only  by  applying  it  departmentally  to  those  parts  of  the  plant 
where  machines  are  in  use,  and  in  distributing  the  balance  of  the  indirect,  by  some 
other  method,  over  the  departments  where  the  product  is  hand  made. 

No.  5. — NEW  MACHINE  RATE 

In  outlining  the  various  methods  now  in  vogue  for  distributing  indirect  ex 
penses,  it  should  be  noted  that  none  of  the  plans  mentioned  has  received  the 


49 

endorsement  of  the  writer,  except  when  used  departmentally.  As  has  already 
been  stated,  the  best  method  of  distributing  indirect  expenses  is  that  which  min 
imizes  the  amount  of  indirect  expense  to  be  pro-rated  on  a  more  or  less  arbitrary 
basis.  By  this  is  meant  a  method  that  will  localize  or  centralize  the  expenses 
ordinarily  termed  indirect  in 'such  a  way  as  to  make  it  possible  to  charge  these 
expenses  to  the  product  directly,  instead  of  indirectly,  and  thus  reduce  the  amount 
which  would  ordinarily  have  to  be  pro-rated  over  the  production.  Consequently, 
any  method  or  plan  which  provides  for  charging  directly  the  greatest  amount  of 
expense  is  the  most  desirable  one  to  adopt. 

The  new  machine  rate  was  devised  with  this  end  especially  in  view.  Where 
it  can  be  applied,  the  results  may  be  said  to  be  as  near  the  true  costs  as  it  is  pos 
sible  to  obtain.  But  attention  should  be  called  at  the  outset  to  the  fact  that  the 
method  is  limited  to  those  factories  or  plants  where  the  majority  of  operations 
are  machine  processes.  It  must  fail  when  applied  to  conditions  where  there  is  a 
considerable  amount  of  bench  work,  or  where  machines  are  only  incidental  to  the 
real  process. 

The  plan  of  procedure  of  the  method  provides  for  charging  the  labor,  and  all 
departmental  expenses,  directly  to  a  process  or  machine  in  such  a  way  as  to  show 
the  total  cost  per  hour,  or  unit  of  measure,  of  operating  the  machine  or  process. 
This  includes  such  general  operating  expenses  as  do  not  pertain  directly  to  the 
machine  or  process  in  question,  but  can  nevertheless  be  associated  indirectly 
with  its  operation.  The  rate  thus  ascertained  is  charged  to  the  cost  of  the  pro 
duct,  the  total  charge  depending  on  the  length  of  time  consumed  in  the  production. 

In  order  to  carry  out  this  plan  in  a  practical  way,  it  is  necessary  to  arrange  the 
machines  of  the  same  kinds  in  groups,  and  thereafter  to  make  the  charges  against 
the  machines  according  to  a  stated  name  or  process.  Whenever  possible,  each 
group  should  be  treated  as  a  separate  department;  but  when  a  department  must 
include  different  processes,  and  machines  of  different  processes,  there  must  be  a 
sub-division  of  charges  in  the  department  itself.  It  is  also  possible  to  handle 
certain  processes  other  than  machine-work,  provided  the  cost  of  all  production 
passing  through  these  processes  is  affected  uniformly. 

Attention  should  be  called  to  the  fact  that  the  phrase  "machines  and  pro 
cesses,"  is  often  substituted  for  the  word  "department,"  in  order  to  emphasize 
the  detailed  distribution.  Unfortunately,  not  every  department  can  be  formed 
to  include  machines  and  processes  of  a  single  type,  and  in  that  case  the  charges 
cannot  be  made  through  the  department  as  a  whole  without  a  certain  loss  in 
accuracy. 

After  the  classification  or  standardization  of  operation  has  been  determined 
upon,  all  operations  or  processes  should  be  charged  with  the  full  time  of  em- 


50 

ployees  engaged  therein,  as  well  as  with  any  supplies  or  repairs  relating  to  them. 
In  addition  to  this,  insurance,  floor  space,  depreciation,  interest  on  investment, 
and  any  or  all  other  items  connected  with  the  manufacture  of  the  product  and 
incident  to  the  operation,  should  also  be  charged.  The  charges  just  mentioned 
relate  to  expenditures  which  can  be  identified  absolutely  as  relating  to  the  ma 
chine  or  process. 

When  these  charges  have  all  been  made,  the  general  indirect  expenses,  or 
expenses  that  are  not  and  cannot  be  properly  charged  to  any  particular  machine 
or  process,  should  be  distributed  among  the  various  departments  according  to 
some  established  basis.  The  department  in  turn  applies  these  general  expenses 
to  the  product,  by  a  plan  which  will  be  explained  later. 

Now  that  the  total  cost  has  been  charged  to  the  various  machines  or  opera 
tions,  the  next  step  to  be  taken  is  to  determine  the  number  of  operating  hours 
of  the  machines  or  processes.  From  this  is  ascertained  the  cost  per  hour  per 
unit  of  measure,  so  that  the  product  passing  through  these  various  operations 
may  be  charged  at  this  rate.  All  expenditures  chargeable  to  the  product,  except 
material,  will  then  be  included  for  the  particular  operation  or  process. 

The  general  working  plan  of  this  method  is  now  clear.  The  machines,  or 
processes,  are  used  as  a  medium  for  transmitting  the  charges  from  their  source 
to  the  product.  They  are  adapted  for  this,  because  a  greater  amount  of  expendi 
ture  can  be  identified  with  a  machine  or  process  than  with  the  product,  especially 
as  regards  the  indirect  expenses.  In  other  words,  they  serve  to  gather  the  costs 
in  such  -a  way  that  the  product  may  be  charged  directly  with  them,  instead  of 
indirectly.  This  is  accomplished  through  the  rate,  that  is,  the  cost  to  run  the 
machine  or  process  per  hour.  By  such  means  the  amount  of  general  expenses  to 
be  more  or  less  arbitrarily  pro-rated  is  reduced  to  a  minimum. 

In  order  to  clarify  this,  attention  is  called  to  certain  of  these  expenses  ordi 
narily  treated  as  indirect,  but  which  in  this  instance  become  direct  charges  be 
cause  of  the  method  used  in  handling  them. 

Take,  as  an  illustration,  interest  on  investment. 

Generally,  where  costs  are  figured,  this  constitutes  a  part  of  the  general  indi 
rect  expenses  and  is  distributed,  together  with  the  other  items  of  its  class,  over 
the  production  of  the  whole  factory.  Thus  it  loses  its  identity,  so  to  speak,  as  a 
separate  item,  being  combined  with  other  expenses  to  form  a  single  account. 
Too  often  it  is  omitted  altogether.  By  this  method,  the  investment  in  the  ma 
chines  and  equipment  used  in  the  several  operations  or  processes  is  set  apart, 
and  the  interest  on  this  amount  is  charged  directly  to  the  machines  or  processes 
to  which  it  relates.  This  is  obviously  a  more  accurate  method  of  distributing 
interest  charges,  or  any  other  item  of  the  same  character,  since  it  is  not  necessary 


DISTRIBUTION    OF    INDIRECT    EXPENSES  51 

to  take  into  consideration  at  this  point  any  particular  class  of  product,  the  ma 
chines  or  processes  being  all  that  is  involved. 

It  may  be  noted  that  as  depreciation  keeps  an  account  of  the  decrease  in  the 
value  of  the  equipment,  it  at  the  same  time  furnishes  the  base  upon  which  the 
interest  is  to  be  computed  for  the  then  present  period.  Thus,  as  the  value  of 
equipment  becomes  less,  through  depreciation,  the  interest  decreases  propor 
tionately. 

The  problem  of  depreciation  itself  finds  a  more  accurate  solution  by  this 
manner  of  handling  it.  As  in  the  case  of  interest  on  investment,  each  machine 
or  process  is  charged  with  the  depreciation  relating  to  itself.  When  the  whole 
depreciation  is  grouped  in  the  general  indirect  expense,  any  single  department  is 
either  forced  to  help  bear  the  depreciation  properly  belonging  to  some  other 
department,  or  is  burdening  the  rest  of  the  shop  with  its  own  depreciation. 
r  The  first  thing  to  be  done  in  the  calculation  of  depreciation  is  to  estimate  the 
life  of  the  equipment  or  machine,  based  on  operating  full  time.  The  cost  of  the 
equipment  should  then  be  divided  by  the  number  of  hours  in  this  period,  in  order 
to  obtain  the  rate  of  depreciation  per  actual  operating  hour.  In  charging  depre 
ciation  monthly,  according  to  this  plan,  the  total  number  of  operating  hours  of 
the  machines  or  processes  should  be  multiplied  by  this  rate  and  the  result  charged 
in  the  cost.  This  is  the  most  accurate  way  to  figure  depreciation,  as  only  the 
working  time  is  included  in  the  calculation. 

Other  items,  showing  the  advantage  of  this  method  of  treatment,  are  insur 
ance,  rent,  taxes,  machine  supplies,  heat  and  power  cost,  etc.  Such  items  as 
insurance,  rent,  taxes,  light,  maintenance  of  buildings,  and  other  expenses  of 
similar  character,  are  generally  divided  among  the  several  departments,  on  the 
basis  of  floor  space  occupied.  Together  they  constitute  an  amount  that  may  be 
designated  as  floor  space  cost,  the  total  of  which  should  be  divided  by  the  total 
floor  space  of  the  factory  to  find  the  amount  per  square  foot  or  square  yard. 
Each  process  or  machine  then  receives  its  share,  in  proportion  to  the  part  of  the 
total  floor  space  it  occupies. 

The  cost  of  machine  supplies,  such  as  oil,  waste,  and  other  expenditures  of 
this  nature,  for  each  group  of  machines,  or  process,  presents  no  special  difficul 
ties,  and  becomes  an  item  with  the  rest  in  the  direct  charge. 

The  distribution  of  power  cost  over  the  machine  and  process  necessitates  the 
determination  of  the  horse-power  of  each  machine  by  taking  an  indication  of 
power.  In  this  way  the  power  is  distributed  over  the  whole  productive  equip 
ment  of  the  plant.  Allowance  for  horse-power  to  cover  transmission  should  be 
made  where  great  exactness  is  desired,  especially  where  the  transmission  power 
is  much  greater  for  some  machines  than  for  others. 


52  FACTORY    ORGANIZATION   AND    COSTS 

After  this  information  has  been  obtained,  the  power  account  should  be  charged 
with  fuel,  salaries  of  firemen  and  engineer,  repairs,  insurance,  supplies,  inspection 
of  boilers  and  engines,  depreciation,  and  all  other  similar  accounts  relating  to  the 
boiler  and  engine-room,  together  with  an  amount  to  cover  interest  on  investment. 
This  should  then  be  divided  at  the  end  of  the  month  by  the  total  horse-power 
hours  of  all  machines,  as  actually  operated,  in  order  to  obtain  the  cost  of  power 
per  horse-power  hour  for  each  particular  month.  This  rate  per  horse-power  hour 
should  then  be  multiplied  by  the  total  horse-power  hours  of  each  machine,  in 
order  to  distribute  the  power  among  the  various  machines  and  processes. 

All  other  charges  relative  to  the  machine  or  processes,  exclusive  of  the  general 
indirect  expenses,  should  be  charged  to  the  machine  or  processes  at  the  end  of  the 
month,  in  the  usual  way,  except  in  the  case  of  labor  and  material.  The  former 
should  be  taken  from  the  time  reports,  and  the  latter  from  the  material  requisi 
tions,  if  a  stock  system  is  used,  and,  if  not,  from  the  invoices  direct. 

The  next  question  to  be  considered,  now  that  all  of  the  direct  charges  have 
been  made  against  the  machine  or  process,  is  the  matter  of  those  expenses  which 
cannot  be  properly  charged  to,  or  identified  with,  any  particular  process  or  ma 
chine.  These  are  divisible  in  two  classes — those  which  belong  to  the  plant  as  a 
whole,  and  those  which  can  be  identified  with  departments  as  units  but  not  on 
particular  machines  in  the  department. 

The  first  step  is  to  divide  the  general  indirect  expenses  among  the  various 
departments  on  some  suitable  basis,  such  as,  for  example,  the  expense  charged 
to  the  departments,  'or  cost  of  direct  labor,  etc.  This  amount,  so  distributed,  is 
then  included  in  and  becomes  a  part  of  the  regular  departmental  indirect  expenses, 
afterwards  distributed  among  the  various  machines  or  processes. 

The  distribution  of  the  departmental  indirect  expenses,  which  now  includes  the 
general  indirect,  is  the  last  charge  which  goes  to  make  the  final  machine  rate. 

The  question  to  be  considered  here  is,  whether  the  system  of  costs  is  based  on 
a  unit  of  measure — that  is,  pounds  or  tons — or  per  hour.  If  the  former  is  the 
case,  then  the  total  departmental  indirect  expenses  should  be  divided  by  the  total 
number  of  pounds,  or  tons,  or  any  other  unit  of  measure  produced,  and  the  rate 
thus  obtained  distributed  among  these  machines  or  processes  at  that  rate  per  unit 
of  measure.  This  transfers  all  of  these  departmental  indirect  expenses  to  the 
various  machines  or  processes  to  which  they  belong. 

If  the  basis  of  cost  is  time,  instead  of  quantity,  the  total  number  of  hours  in 
which  all  machines  or  processes  were  engaged  during  the  month  should  be  divided 
into  the  departmental  indirect  expenses  and  the  rate  per  hour  ascertained.  This 
should  then  be  multiplied  by  the  total  operating  hours  of  each  machine,  or  pro 
cess,  and  the  amount  entered  in  the  cost  in  that  manner. 


DISTRIBUTION   OF   INDIRECT   EXPENSES  53 

If  desired,  the  total  departmental  indirect  expenses  may  be  divided  by  the 
total  cost  of  direct  labor,  and  the  rate  used  in  distributing  these  expenses  over 
the  various  machines  or  processes,  on  the  basis  of  the  labor  cost,  charged  to  each 
machine  or  process. 

The  working  plan  of  the  new  machine  rate  method  may  now  be  summarized 
as  follows:— 

(1)  All  expenses  which  can  be  possibly  charged  to  machines  or  processes  are  so 
charged.     This  includes  labor,  supplies,  interest,  etc.,  as  outlined  previously.     It 
is  this  step  that  constitutes  the  essence  of  this  method. 

(2)  The  general  indirect  expenses  are  distributed  among  the  different  depart 
ments,  and  are  then  added  to  the  department  indirect  expenses. 

(3)  The  total  department  indirect  expenses  are  then  distributed  over  the  ma 
chines  or  processes. 

(4)  Combining  the  charges  of  one  and  three,  the  total  machine  rate  is  deter 
mined,  which  includes  all  items  of  cost  but  material. 

To  find  the  cost  of  any  article  is  a  simple  process.  Suppose  it  to  pass  through 
several  departments  or  processes.  The  number  of  hours  it  is  operated  on  in  each 
process,  multiplied  by  the  machine  rate  for  that  process,  gives  the  different  pro 
cess  costs. 

To  the  sum  of  these,  or  the  total  process  cost,  add  the  material  cost,  taken 
from  the  invoice  or  material  requisition,  and  the  final,  or  factory  cost,  is  obtained. 

No.  6. — FIXED  MACHINE  RATE 

The  essential  step  in  this  method  consists  of  the  preparation  of  rates,  which 
are  obtained  departmentally — either  from  the  results  furnished  by  a  system  pre 
viously  operated  or  from  an  investigation  and  analysis  of  the  expenses  known— 
to  be  chargeable  to  particular  machines  or  processes.     These  charges  are  then 
calculated  according  to  the  maximum  operating  machine  time. 

The  machine  rate  thus  obtained  is  then  charged  to  the  cost  each  month  and 
credited  to  the  department  indirect  expense  account,  irrespective  of  the  actual  cost 
per  hour,  as  shown  by  the  actual  charges  and  the  actual  machine  time.  This 
department  indirect  expense  account  consists  of  the  sum  of  the  machine  rates  for 
a  given  period,  and  is  supposed  to  include  all  the  indirect  expenses  connected 
with  the  department  as  such.  The  general  indirect  expenses  are  not  distributed 
departmentally  in  this  method,  but  by  a  supplementary  rate,  which,  as  generally 
used,  covers  the  whole  factory.  In  this  supplementary  distribution  any  method 
desired  can  be  employed,  such  as  labor  cost,  or  labor  hours,  etc. 

After  these  rates  have  been  obtained,  and  the  machines  or  processes  to  com- 


54  FACTORY   ORGANIZATION   AND    COSTS 

prise  the  system  classified,  the  actual  charges  relating  to  the  machines  or  pro 
cesses,  which  are  presumably  included  in  the  rate,  are  determined.  Whatever 
differences  exist  between  the  estimated  rate  and  actual  charges  are  transferred  to 
the  general  indirect  expense  account,  to  be  adjusted  through  the  supplementary 
distribution. 

There  is  a  certain  similarity  between  this  plan  and  the  one  previously  de 
scribed,  up  to  a  certain  point;  but  after  that,  and  actually  as  to  results,  there  is 
a  wide  difference.  In  this  instance,  all  the  charges  relating  directly  to  the  ma 
chine  or  process  are  entered  in  the  cost,  precisely  in  the  same  manner  as  in  the 
other  system.  But  the  indirect  expenses  in  the  new  machine  rate  are  distributed 
over  the  machines  or  processes,  and  included  in  the  machine  or  process  cost,  in 
calculating  the  rate  per  hour;  whereas,  in  the  fixed  machine  rate,  the  indirect 
expenses  which  cannot  be  identified  with  particular  machines  or  processes  are 
pro-rated  over  the  entire  production  on  a  percentage  or  some  other  basis. 

The  fixed  rate  method  differs  from  the  other  also,  in  that  the  rate,  to  begin 
with,  is  based  on  an  estimate  or,  at  best,  on  what  happened  during  some  previous 
period.  It  also  assumes  an  efficiency  of  100  per  cent,  in  running,  which  is  a  con 
dition  that  has  never  been  known  to  exist.  Crediting  the  departmental  indirect 
expense  account  with  charges  based  on  running  maximum  time,  where  the  pro 
duct  is  only  charged  with  the  actual  running  expenses  of  the  machines  when  they 
are  at  work,  necessarily  produces  a  credit  balance  for  the  indirect  expense  account 
in  a  comparatively  short  time.  That  is,  the  indirect  expenses  of  the  department 
appear  in  the  charges  to  the  production  as  being  much  greater  than  they  really 
are.  Compensation  for  these  extra  charges  must  be  made  somewhere,  or  the  costs 
obtained  would  be  nothing  short  of  ridiculous.  Therefore  the  difference  or  the 
amount  by  which  the  indirect  expense  account  exceeds  the  actual  charges,  is 
deducted  from  the  general  indirect  expenses  before  they  are  distributed. 

The  nature  of  this  proposition  can  be  understood  more  clearly  when  it  is  con 
sidered  that,  if  there  are  a  great  number  of  machines  idle,  the  general  indirect 
expenses  appear  to  be  much  diminished.  In  fact,  if  a  major  part  of  the  equip 
ment  were  not  at  work  they  would  disappear  entirely.  At  the  very  best,  this 
results  in  a  distribution  that  is  so  inexact  as  to  be  valueless  to  the  manufacturer. 
Nor  is  it  correct  in  amount,  when  considered  in  its  entirety.  The  plan  of  deduct 
ing  the  rate  of  idle  machines  from  the  general  indirect  expenses  assumes  that 
there  are  no  indirect  expenses  whatever  connected  with  the  machine  while  it  is 
standing  idle.  But  we  have  seen  that  this  is  not  true.  Interest,  floor  space,  rent 
and  depreciation,  to  a  more  or  less  extent,  besides  other  expenses  of  this  nature, 
go  on  just  the  same,  and  no  provision  is  made  for  their  incorporation  in  the  true 
costs  of  the  plant. 


DISTRIBUTION    OF   INDIRECT   EXPENSES  55 

This  is  far  from  an  imaginary  difficulty,  for  it  arises  in  two  cases,  both  very 
common — viz :  when  parts  of  the  factory  are  idle,  as  in  dull  times,  or  when  there 
are  machines  that  are  only  used  occasionally  at  best.  Some  of  these  latter  are  a 
necessity,  and  yet,  owing  perhaps  to  their  enormous  capacity  or  peculiar  product, 
cannot  be  expected  to  run  more  than  a  small  fraction  of  the  whole  time.  Obvi 
ously  nothing  can  be  gained  by  charging  the  product  of  such  machines  with 
charges  based  on  full  efficiency.  In  fact,  its  principal  effect  is  to  disturb  the 
costs  of  the  whole  factory. 

On  the  other  hand,  if  the  machine  rate,  as  previously  fixed,  be  less  than  the 
actual  rate,  the  difference  between  the  charges  of  the  estimated  rate  and  actual 
charges  must  be  added  to  the  general  indirect  expense  account,  and  subsequently 
distributed  over  the  production  in  the  supplementary  entry;  otherwise  the  cost 
records,  without  the  supplementary  entry  covering  these  deficits  in  machine 
rate,  would  be  far  from  accurate. 

Attention  is  at  once  attracted  to  the  fact  that  no  matter  which  way  the  dis 
crepancy  occurs,  recourse  is  had  to  the  indirect  expenses  to  adjust  the  difficulty. 
The  trouble  here  is  that  the  rate  is  essentially  an  estimate,  and,  at  bottom,  is 
arbitrary.  If  it  agrees  with  the  actual  charges  all  well  and  good.  But  it  is  fai 
more  likely  not  to  agree  with  them;  and  then  there  is  that  discrepancy  which 
cannot  but  throw  the  true  distribution  of  indirect  expenses  out  of  order. 

The  differences,  and  resulting  errors,  are  accentuated  because  the  rate  is  based 
on  full  running  time,  instead  of  the  average  or  actual  running  time,  which,  after 
all,  is  the  logical  basis  for  a  machine  rate.  It  is  not  a  question  of  what  a  machine 
can  do  but  what  it  does  do,  day  in  and  day  out,  even  if  this  represents  only  40 
per  cent,  efficiency. 

Altogether,  it  may  be  concluded  that,  except  in  very  special  cases,  the  fixed 
machine  rate  is  not  adapted  to  give  satisfactory  results  in  the  determination  of 
true  costs. 

No.  7. — NEW  PAY  RATE 

The  principles  underlying  this  method  are  the  same  as  in  the  first  method, 
but  they  are  applied  differently.  The  indirect  expenses  relating  to  a  particular 
department  are  ascertained  separately,  and  the  general  operating  expenses  are 
first  distributed  among  the  departments  on  the  basis  of  direct  labor  cost,  before 
the  percentage  of  indirect  expense  of  each  department  is  calculated, 
department  indirect  expenses  are  then  applied  separately  to  the  product  manu 
factured  in  each  of  these  departments,  but  in  a  different  manner 

been  described 

The  chief  feature  of  this  plan  is  that,  after  the  indirect  expenses  are  deter- 


56  FACTORY   ORGANIZATION   AND    COSTS 

mined  departmentally,  instead  of  charging  them  as  percentages  to  the  product  of 
these  departments,  they  are  added  as  separate  rates  to  the  rates  of  pay  of  the 
employees  engaged  in  each  department.  The  new  rate,  which  includes  indirect 
expenses,  is  charged  to  the  product  by  multiplying  the  employee's  time  consumed 
in  the  operation  by  the  new  rate,  instead  of  first  charging  or  extending  the  amount 
of  labor  cost  and  then  adding  the  percentage  for  indirect  expenses. 

This  method  has  some  distinct  advantages  and,  at  the  same  time,  correspond 
ingly  great  disadvantages.  In  the  first  place,  it  is  applied  departmentally  and  so 
avoids  most  of  the  defects  noted  in  the  methods  employing  an  average  rate.  Even 
then  it  can  be  used  only  where  the  conditions  in  the  department  itself  are  com 
paratively  uniform  as  to  wages,  equipment,  etc. 

Its  great  practical  advantage  lies  in  its  simplicity.  In  comparison  with  pro 
rating  the  indirect  expenses  over  several  hundred  orders  or  articles,  it  is  excep 
tionally  simple,  since  the  greater  part  of  the  calculation  lies  in  figuring  the  pay 
rate.  When  this  is  determined  the  application  to  any  order  or  article  is  only  a 
matter  of  multiplying  the  time  the  order  or  article  was  in  process  by  the  rate  per 
unit  time.  Nor  is  the  determination  of  the  pay  rate  a  bit  more  difficult  than  the 
fixing  of  any  other  rate  which  will  distribute  indirect  expenses  accurately.  The 
saving  of  time  in  a  large  plant,  resulting  from  the  use  of  this  method,  would  prob 
ably  amount  to  a  considerable  item;  and,  allowing  that  the  distribution  had  been 
made  under  conditions  where  it  would  be  accurate,  this  point  alone  would  recom 
mend  it  strongly  to  the  manufacturer. 

However,  the  disadvantages  connected  with  its  use  are  no  less  great.  Let  us 
admit  that  it  succeeds  in  giving  true  costs;  this  is  only  half  the  point  of  a  cost 
system.  The  data  of  a  good  system  should  be  so  compiled  and  arranged  that  an 
analysis  can  be  made  of  the  costs  in  any  or  all  parts  of  the  plant.  This  is  impos 
sible  under  the  new  pay  rate  in  its  simple  form.  It  collects  charges  in  totals, 
and  attains  its  simplicity  by  neglecting  the  proper  classification  and  arrangement 
of  separate  items. 

If  the  manufacturer  wishes  to  find  these  things  out,  in  order  to  locate  leaks 
or  effect  economies,  he  must  make  a  separate  job  of  it  and  disassociate  it  more  or 
less  from  the  cost  system.  But  by  so  doing  he  falls  back  into  the  same  difficulty 
which  he  hoped  to  avoid  by  the  use  of  the  new  pay  rate — viz:  the  necessity  for 
detail.  All  in  all,  he  might  better,  perhaps,  have  installed  some  other  system 
which  would  collect  and  arrange  the  data  necessary  for  analysis  as  a  part  of  its 
regular  function. 

Where  the  analysis  of  the  costs  in  a  factory  is  not  particularly  desired  by  the 
management,  and  where  other  conditions  admit  of  its  being  used,  there  is  no 
method  that  will  give  more  satisfaction  than  the  new  pay  rate.  But  it  should  be 


DISTRIBUTION    OF    INDIRECT   EXPENSES  57 

borne  in  mind  that  it  sacrifices  the  means  of  detecting  weak  spots  in  the  processes 
of  production,  which  is  one  of  the  most  valuable  and  essential  features  connected 
with  a  proper  cost  system. 

At  different  times  in  this  chapter,  the  use  of  two  or  even  more  methods  of 
distribution  in  the  same  plant  has  been  suggested.  This  should  be  emphasized 
as  one  of  the  most  valuable  points  made.  One  of  the  great  difficulties  in  finding 
costs  in  large  plants  has  been  the  utter  dissimilarity  of  process  in  different  parts 
of  the  same  plant.  How  to  deal  with  this  feature,  and  at  the  same  time  keep 
within  the  limits  of  practical  detail,  has  been  a  constant  and  a  most  irritating 
problem  to  the  manufacturer. 

As  has  been  pointed  out,  the  practical  solution  lies  in  the  proper  departmen 
talization  of  the  plant,  and  the  determination  and  distribution  of  the  indirect 
expenses  through  the  medium  of  these  departments.  It  is  by  this  means  that 
the  expenses  are  properly  localized  and,  at  the  same  time,  a  wider  field  for  the 
choice  of  distributing  methods  is  obtained. 

When  a  plant  is  once  properly  classified,  the  manufacturer  is  then  free  to  use 
a  machine  rate  where  the  processes  are  essentially  machine  processes,  or  where 
they  are  not  he  can  introduce  the  labor  cost,  or  labor  hours,  or  some  other  method 
suitable  to  the  conditions.  The  new  pay  rate  is  often  very  effective  when  used 
in  certain  departments  where  the  nature  of  all  the  expenses  is  already  well 
understood. 

This  freedom  of  choice  marks  the  highest  development  of  the  modern  cost  sys 
tem,  and  is  at  once  the  result  of  and  the  most  effective  instrument  connected  with 
the  proper  organization  of  factories  in  arriving  at  the  correct  finding  of  costs. 


CHAPTER  V 

GENERAL   INTRODUCTION   TO    FORMS   AND    SYSTEMS 

Principles  Used  in  Forms  and  Systems — Course  to  be  Followed  in  Study. 

ESTIMATED  COST  SYSTEMS — Method  of — Principles  Involved — When  a  Stock   System  should  be 

Installed — What  Action  should  be  Taken  when  Results  Show  Inaccurate  Estimates. 
ACTUAL  COST  SYSTEMS — Importance  of — Conditions  Governing  Introduction — Stock  Systems — 

Forms  Used  in  All  Systems. 

IN  all  of  the  forms  and  designs  used  in  connection  with  the  several  systems 
appearing  in  the  following  chapters,  together  with  the  underlying  principles,  only 
those  that  have  been  in  actual  operation  in  both  large  and  small  factories  have 
been  used;  therefore  these  systems,  and  the  forms  appearing  in  the  following 
chapters,  do  not  in  any  case  represent  what  might  be  done,  but  what  has  actually 
been  accomplished. 

These  systems  and  forms  should  be  taken  up  in  the  order  in  which  the  chapters 
appear,  as  the  arrangement  has  been  made  with  the  idea  of  bringing  to  the  atten 
tion  of  the  reader  the  things  with  which  he  should  be  familiar  before  attempting 
to  digest  the  next  subject.  If  these  chapters  are  carefully  read,  section  by  section, 
it  should  not  be  difficult  for  any  one  at  all  familiar  with  the  principles  of  account 
ing  and  the  conduct  of  business  generally  to  understand  the  subject  matter  con 
tained  in  them. 

In  presenting  the  several  topics,  so  far  as  they  relate  to  the  conditions  and 
underlying  principles  governing  the  subject,  it  has  been  necessary  to  use  to  a 
certain  extent  the  same  phraseology  in  explaining  the  application  of  the  same 
principles  or  forms  to  different  conditions;  for  if  different  words  or  phrases, 
meaning  the  same  thing,  were  used,  the  reader  not  thoroughly  familiar  with  the 
subject  might  otherwise  be  more  confused  than  enlightened.  Where  two  dif 
ferent  systems  are  explained,  and  where  some  of  the  same  forms  are  used  in  both 
systems,  covering  the  same  conditions,  a  reproduction  of  the  same  form  occurs. 
This  is  done  with  the  object  in  view  of  enabling  the  reader  to  see  more  clearly 
the  difference  between  the  two  principles  where  the  conditions  are  the  same,  and 
to  comprehend  more  readily  the  forms  in  the  system  as  a  whole  by  not  having  so 
many  forms  of  different  design  to  keep  in  mind.  It  will  also  minimize  reference 
to  other  sections  of  the  work. 

In  explaining  the  various  designs  of  the  same  kind  in  the  chapters  explaining 
these  designs  and  forms,  it  will  be  noticed  that  all  of  these  designs  are  for  the 


GENERAL  INTRODUCTION  TO  FORMS  AND  SYSTEMS        59 

most  part  explained  collectively  instead  of  separately.  The  reason  for  this  is 
that  one  of  each  kind  of  form  has  been  explained  in  the  systems,  with  the  excep 
tion  of  certain  forms  of  a  purely  general  character  not  relating  to  any  particular 
system  or  constituting  any  essential  part  of  a  system.  The  designs  so  explained 
in  the  systems  were  selected  from  the  ones  submitted  in  the  following  chapters 
on  forms,  so  as  to  explain  at  least  two  forms  of  the  same  kind  illustrating  differ 
ent  conditions  or  principles.  This  explanation  and  the  general  remarks  made  in 
Chapter  VI  relating  to  forms,  considered  together,  will  cover  the  field  better  than 
a  detailed  explanation  of  each  particular  form  without  reference  to  a  system. 
These  forms,  together  with  the  remarks  explaining  each  class  of  design  collec 
tively,  are  intended  to  give  the  reader  an  idea  of  the  various  kinds  of  designs 
used  in  the  compilation  of  data  on  each  particular  subject  and  to  suggest  various 
designs  to  be  used  for  the  same  purpose  but  under  different  conditions,  according 
to  the  kind  of  system  to  be  inaugurated.  The  workings  of  the  different  kinds  of 
systems  and  the  underlying  principles  involved  are  explained  in  the  chapters 
dealing  with  the  systems;  and  if  these  forms  are  considered  in  connection  with 
the  outline  given  in  respect  to  the  principles  involved  in  operating  such  systems, 
a  better  idea  will  be  obtained  of  the  purpose  and  advantage,  or  disadvantage,  of 
some  particular  design  over  another  than  in  any  other  manner. 

FORMS   OR   DESIGNS 

The  reader  will  observe,  by  referring  to  the  chapters  wherein  are  shown  sev 
eral  different  designs  of  the  same  form,  that  in  each  of  these  forms,  in  some  cases 
many  in  number,  appear  slight  changes  in  the  ruling  and  general  appearance; 
but  if  these  designs  are  carefully  scrutinized  it  will  be  seen  that  in  reality  this 
difference  is  more  material  than  appears  on  the  face.  But  there  are  forms  with 
slight  changes  where  the  difference  is  not  of  importance— appearing  purposely, 
however,  with  the  idea  in  mind  of  suggesting  to  the  reader  how  to  effect  such 
changes  in  detail,  so  as  to  assist  him  in  making  any  changes  or  creating  new 
designs  suitable  to  a  particular  business. 

ESTIMATED   COST   SYSTEMS 

In  order  to  assist  those  who,  instead  of  using  an  actual  cost  system,  estimate 
their  costs  and  keep  their  general  accounts  in  the  books  in  such  a  way  as  to  make 
it  difficult  to  form  any  opinion  as  to  the  accuracy  of  these  estimates  at  the  end  of 
the  year  or  at  any  other  time,  several  methods  calculated  to  aid  in  such  case 
will  be  found  in  the  chapters  on  this  subject. 

The  methods  of  verifying  these  estimated  cost  calculations  are  presented  with 


60  FACTORY    ORGANIZATION   AND    COSTS 

the  idea  in  mind  of  enabling  the  manufacturer  to  satisfy  himself  whether  these 
estimates  are  at  variance  with  the  facts  in  the  case  or  not;  and  if  so,  if  these 
discrepancies  in  the  estimates  are  of  such  a  nature  as  to  involve  losses  to  such 
an  extent  as  to  cause  alarm.  These  principles,  involving  the  verification  of 
estimated  costs,  are  explained  by  illustrating  the  most  simple  method  of  ascer 
taining  these  facts  consistent  with  accuracy;  and  from  this  simple  method,  using 
the  same  principles,  two  more  extensive  plans  are  described,  these  three  methods 
being  calculated  to  outline  in  which  respect  or  in  which  element  of  cost  the  inac 
curacies  occurred. 

After  all  of  the  facts  have  been  determined,  and  it  is  definitely  known  wherein 
the  estimated  costs  are  incorrect,  it  is  for  the  manufacturer  to  decide  what  action, 
in  his  judgment,  should  be  taken.  In  order  to  aid  his  judgment  in  this  respect, 
his  attention  is  called  to  the  fact  that  if  these  estimates  are  in  fault  in  estimating 
material  costs,  and  an  investigation  reveals  the  fact  that  these  estimates  cannot 
be  more  carefully  calculated  by  his  present  methods,  then  a  stock  system  should 
be  installed.  If,  on  the  other  hand,  the  results  show  that  the  difficulty  lies  in 
labor  estimates  in  any  one  department,  then  in  such  a  case  a  cost  system  should 
be  installed  in  this  particular  department.  In  the  event  that  all  of  the  results 
shown  are  of  such  a  nature  as  to  cause  doubt  in  his  mind  as  to  the  accuracy  of 
any  of  the  estimates,  then  a  complete  cost  system  should  be  installed  in  all  de 
partments,  to  be  operated  for  a  certain  period  of  time,  if  not  continuously,  so  as 
to  obtain  the  information  that  would  enable  him  to  revise  his  estimates  of  costs, 
and  to  make  such  changes  in  selling  prices  and  in  methods  of  manufacture  as  the 
case  requires. 

These  remarks  are  made  only  for  the  purpose  of  assisting  the  manufacturer 
who  does  not  now  operate  a  cost  system,  and  it  is  not  to  be  inferred  from  what 
has  been  stated  herein  that  any  of  the  methods  and  plans  mentioned  can  possibly 
furnish  the  information  to  be  obtained  from  the  operation  of  an  actual  cost 
system.  From  the  experience  gained  in  the  designing  and  installing  of  cost 
systems  in  almost  every  class  of  manufacturing  business,  the  reader  is  positively 
assured  that  the  cost  of  production,  according  to  article,  cannot  be  estimated 
accurately  or  determined  in  any  case  where  an  actual  cost  system  is  not  in 
operation. 

ACTUAL   COST   SYSTEM 

The  importance  of  this  subject,  while  being  generally  conceded,  is  nevertheless 
sadly  neglected,  and  the  only  explanation  that  can  be  given  is  that  either  the 
business  man  and  his  assistants  are  not  able  to  inaugurate  such  a  system,  or  the 
expense  that  might  be  involved  prevents  him  from  taking  any  action  in  this 


GENERAL  INTRODUCTION  TO  FORMS  AND  SYSTEMS        61 

direction.  This  is  the  only  logical  explanation  that  can  be  offered  where  the 
importance  of  the  matter  is  conceded  and  admits  of  no  argument  or  difference 
of  opinion.  Experience  has  clearly  shown  that  where  an  actual  cost  system  is 
properly  designed  and  installed,  and  where  the  information  furnished  is  intelli- 
gentl}'  used  in  connection  with  both  the  sales  department  and  factory,  the 
installation  would  be  wholly  justified  by  the  results.  The  expense  of  installing 
and  keeping  such  records  is  so  small  in  comparison  with  the  saving  as  to  be 
absolutely  an  unimportant  factor,  and  one  not  to  be  considered  for  a  moment, 
taking  into  consideration  the  net  results  derived. 

The  attention  of  the  reader  is  directed  to  the  several  systems  described,  in 
which  are  explained  the  two  basic  principles  of  accurate  cost  keeping — namely, 
the  use  of,  first,  "Productive  Labor,"  or,  second,  "Machine  or  Process  Cost" 
as  the  basis  of  cost  finding.  Consideration  is  also  given  to  the  relation  of  these 
two  principles  to  the  two  standard  conditions  under  which  each  may  be  applied: 
these  two  conditions  being,  first,  where  it  is  advisable  to  obtain  costs  on  each 
order  or  article,  and,  second,  where  it  is  advisable  to  obtain  the  average  cost  of 
all  articles  of  the  same  description.  The  systems  applicable  to  these  two  condi 
tions  are  hereafter  designated  as  the  "Special  Order  System"  and  the  "Product 
System,"  respectively.  If  these  two  conditions  are  thoroughly  understood,  keep 
ing  out  of  mind  entirely  any  particular  kind  of  business,  and  each  principle  is 
considered  in  connection  with  these  two  conditions,  a  better  understanding  of  the 
basis  of  cost  keeping  can  be  obtained,  as  in  these  two  conditions  and  these  two 
principles  lies  the  basis  of  all  correct  cost  finding.  Consequently  the  importance 
of  thoroughly  understanding  both  these  conditions  and  these  principles  cannot 
be  overestimated.  With  this  in  mind,  the  reader  should  then  examine  all  of  the 
forms  in  each  one  of  these  systems,  so  as  to  understand  how  to  apply  these  prin 
ciples  from  a  system  standpoint  to  the  conditions  existing  in  any  particular 
business.  If  the  conditions  existing  in  any  plant  are  the  same  as  those  described 
in  any  of  the  systems  presented  in  this  work,  and  if  the  principle  involved  is  not 
adaptable  to  these  conditions,  then  the  system  in  which  the  other  principle  is 
outlined  under  the  same  conditions  should  be  studied  in  connection  with  the 
business  to  which  it  is  proposed  to  apply  a  system  of  this  kind.  After  a  system, 
as  well  as  all  of  the  forms  connected  therewith,  has  been  thoroughly  comprehended, 
the  reader  should  compare  each  of  these  forms  with  those  shown  in  the  chapters 
dealing  with  forms,  wherein  will  be  found  a  great  variety  of  designs  for  the  : 
purpose.  From  these  forms  such  designs  as  will  be  most  convenient 
ticular  business  can  be  prepared. 

It  will  be  noticed  that  only  two  methods  of  distributing  indirect  expenses  h» 
been  used  in  illustrating  the  systems.     This  has  been  done  so  as  to  show  clearly 


62  FACTORY   ORGANIZATION   AND    COSTS 

the  essential  differences  between  the  four  complete  cost  systems,  without  confus 
ing  the  reader  by  the  explanation  of  a  different  method  of  distributing  indirect 
expenses  in  each  case.  For  instance,  the  first  two  systems  both  relate  to  a  busi 
ness  where  the  product  is  manufactured  on  special  orders  only,  and  where  it  is 
desirable  to  obtain  the  cost  on  each  order.  In  the  first  of  these  systems  the 
indirect  expenses  are  distributed  on  the  "Productive  Labor"  method,  and  in  the 
second  on  the  "New  Machine  Rate"  plan.  The  last  two  systems  relate  to  a 
business  where  the  product  is  not  manufactured  on  special  orders  and  where  prod 
uct  costs  are  desirable,  the  principles  being  the  same  as  in  the  first  two  systems. 
Consequently  only  the  same  two  methods  of  distributing  indirect  expenses  are 
used  in  the  systems  so  as  to  make  the  comparison  between  the  systems  marked 
and  distinct.  Other  methods  of  distributing  indirect  expenses  than  the  two 
used  in  these  systems  may  be  applied  according  to  the  conditions  of  manufacture. 

STOCK    SYSTEM 

Although  it  is  not  necessary  to  inaugurate  a  perpetual  inventory  in  order  to 
obtain  costs,  yet  it  is  advisable  to  do  so  whenever  possible,  as  a  safeguard 
to  prevent  waste  of  material,  theft,  or  losses  from  any  other  causes;  and  also  to 
guard  against  over-buying  or  failure  to  carry  in  stock  such  materials  as  are  neces 
sary  for  the  operation  of  the  plant. 

There  is  no  good  reason  why  a  system  of  this  kind  should  not  be  in  operation 
in  every  plant,  notwithstanding  all  objections  based  on  lack  of  storeroom  accom 
modations  and  other  reasons  of  the  same  kind.  It  is  not  necessary  to  have  a 
stock  room  in  order  to  keep  stock  records,  although  better  results  will  be  accom 
plished  where  some  organization  exists  in  this  respect.  Materials  may  be  located 
in  several  departments  without  affecting  the  efficiency,  as  long  as  some  one  is  in 
charge  and  responsible  for  the  material  in  these  departments.  The  advantage  of 
using  stock  records  is  so  great  that  it  is  difficult  to  understand  why  this  practice 
is  not  more  general,  and  equally  hard  to  comprehend  why  the  manufacturer 
permits  his  storeroom  to  be  kept  in  the  chaotic  condition  so  commonly  found  in 
factories.  The  material  in  the  operating  departments  of  the  factory  is  often 
scattered  about  to  such  an  extent  as  to  absolutely  interfere  with  manufacturing, 
when,  at  the  same  expense,  a  more  orderly  state  of  affairs,  operating  decidedly  to 
the  advantage  of  everyone  concerned,  might  just  as  well  exist. 

In  order  to  assist  those  desiring  to  design  and  install  a  system  along  these 
lines,  numerous  designs  of  all  descriptions,  relating  to  this  subject,  together  with 
full  explanations  as  to  their  use,  will  be  found  in  the  chapters  in  which  stock 
records  are  explained. 


GENERAL  INTRODUCTION  TO  FORMS  AND  SYSTEMS        63 


CLASS    OF    FORMS    USED    IN    THE    SYSTEMS 


FORMS                                                    USED 

IN    CHAPTERS 

FORMS 

USED   IN  CHAPTERS 

Purchase  Requisitions: 

Stock  Records  —Finished  Product: 

1  A 

.     36-37 

12  B 

.     36-37 

IB.. 

38 

12  K 

39 

1C. 

39 

12  F 

•> 

Purchase  Orders: 

Cost  Records: 

2  A        . 

39 

13  E 

3.s 

2  B        . 

.     37-38 

13  L 

.     37-39 

2  D 

36 

13  M       . 

.     37-39 

Report  of  Material  Received: 

13  S 

39 

oo 

3  E 

.     36-37 

13  T 

32 

3  F 

39 

13  U 

.     33-34 

3  G       . 

38 

Defective  Work  Reports: 

14  A 

XK 

Stock  Record  —  Raw  Material: 

i       A 

QQ 

Statement  of  Factory  Expenditures: 

4    A          . 

O  J 

15  A 

38 

4  B        .          . 

.     36-37 

15  D 

36 

4  G       . 

38 

Operating  ledger: 

Production  Order: 

16  C 

.     38-39 

51.                    . 

38 

Billing  Svstems: 

5  K       . 

35 

17  A 

.  36-37-38-39 

5  L 

39 

18  A 

.  36-37-38-39 

5  N        . 

36 

Register  of  Sales 

and  Costs: 

5  P 

37 

19  A 

.     36-37 

Material  Requisition: 

19  B 

39 

6  A 

38 

19  T 

38 

6  B 

.     36-37 

19  K 

35 

6  F 

34 

19  F 

32 

Bill  of  Material: 

19  G 

.     33-34 

7  A 

35 

Accounts  Pavable 

Voucher: 

Report  of  Material  Delivered: 

S    TC 

38 

20  A        .                              .                      38 
Register  of  Accounts  Payable: 

O     -LJ              • 

21   B 

.     38-39 

8  D 

34 

21  C 

35-36-37 

Time  Tickets: 

21   I) 

.     33-34 

9  B 

38 

Check  Voucher: 

O  ^* 

9  C        . 

3o 

•»     A 

38 

9  H       . 

39 

JJ    A 

22  B 

39 

9  X 

.      36-37 

Cash  Svstems: 

9  AB     . 

34 

23  A 

.     38-39 

Pay-Roil  and  Labor  Distribution 

Sheet  : 

93  B 

.     36-37 

10  F 

39 

Drawing  Pattern 

and  Equipment  Records: 

in  G 

38 

4-i   \ 

.     38-39 

10  J 

35 

45  B 

.     36-37 

10  K       . 

.     36-37 

46  A 

32 

10  L 

39 

46  B 

.     33-34 

10  M       . 

33 

Monthly  Reports 

Relating  to  Financial  Status 

10  N 

34 

and  Earnings: 

Production  Reports: 

UT 

35 

53  A 
53  B 

34-38-39 
....     36-37 

L 
11  M       . 

.     38-39 

55  A 

34-36-37-38-39 

CHAPTER  VI 

DESIGNS   AND    EXPLANATIONS   RELATING   TO    CONDITIONS    UNDER   WHICH 

FORMS    SHOULD    BE    USED 

Designs  Used  in  Actual  Operation — Conditions  under  Which  Used — How  to  Select  Forms — Errors 
in  Designing  Forms — Necessity  of  a  Form  General  in  Design — Size — Explanation  of  Broken 
Line — Knowledge  of  Principles  of  Cost  Necessary— Where  both  Manufacturer  and  the  Account 
ant  Are  at  Fault. 

CHAPTERS  VII  to  XXXI,  inclusive,  are  devoted  to  the  explanation  and  illus 
tration  of  the  various  forms  which  may  be  introduced  in  a  manufacturing  busi 
ness.  The  forms  shown  are  in  most  cases  similar  to  forms  that  are  to-day  in 
successful  operation  in  factory  systems  that  have  been  devised  by  the  author. 
These  forms  have  been  used  in  a  number  of  plants  manufacturing  different  prod 
ucts,  and  it  is  believed  that  in  their  entirety  they  cover  most  of  the  important 
conditions  which  will  be  found  to  exist  in  any  one  plant. 

This  does  not  mean  that  these  forms  are  submitted  to  the  business  man  or 
accountant  as  being  absolutely  orthodox  in  design  and  admitting  of  no  change. 
No  one  form  is  adaptable  to  all  lines  of  manufacture  or  accounting,  and  even  in 
the  same  line  of  business  the  same  form  cannot  be  used  successfully  in  every 
instance,  as  the  volume  of  business,  the  conditions  of  manufacture,  and  the  policy 
of  the  management,  so  far  as  the  plan  of  organization  is  involved,  would  make 
this  impracticable.  For  this  reason  the  reader  is  cautioned  to  read  carefully  all 
of  the  explanatory  matter  relating  to  the  conditions  under  which  the  designs 
should  be  used,  before  any  selection  of  a  particular  design  is  made.  In  this  way 
it  will  be  possible  for  the  reader  to  select  a  design  that  relates  to  a  distinct  prin 
ciple  or  condition  of  manufacture,  and  to  change  the  design  in  details  so  as  to 
obtain  a  form  that  will  be  suitable  to  the  particular  conditions  existing  in  any 
plant. 

One  of  the  most  common  mistakes  made  by  the  business  man  who  attempts 
to  design  a  system  without  technical  knowledge,  or  without  the  assistance  of  an 
experienced  systematizer,  is  in  the  arrangement  or  design  of  the  particular  form 
and  in  making  the  form  so  specific  as  to  admit  of  no  change  whatever.  In  such 
cases  a  small  omission  here  or  there  makes  it  impossible  to  use  the  form,  whereas 
if  a  design  general  in  character  were  used,  no  such  difficulty  would  be  experienced. 
Such  forms  are  usually  so  arranged  as  to  obtain  information  for  one  particular 


DESIGNS    AND    EXPLANATIONS  65 

purpose  only,  and  for  this  reason  it  is  impossible  to  use  the  form  in  this  compila 
tion  of  general  results,  or  to  utilize  the  information  furnished  for  any  other 
purpose  except  gathering  the  information  for  which  the  form  was  originally 
intended. 

It  should  be  borne  in  mind  that  it  is  impossible  to  gather  information  on  one 
particular  subject  without  at  the  same  time  procuring  information  that  could  be 
utilized  in  other  ways.  As  an  illustration,  it  would  not  be  possible  to  obtain  a 
list  of  the  material  used  in  manufacturing,  chargeable  to  a  particular  order  or 
product,  without  at  the  same  time  gathering  information  that  wrould  be  of  use  in 
connection  with  a  stock  system;  and  this  same  principle  is  true  in  compiling  any 
and  all  information  relating  to  the  details  incident  to  manufacture  and  account 
ing  generally. 

The  size  of  most  of  the  following  designs  has  been  reduced  to  facilitate  repro 
duction.  The  standard  size  is,  however,  noted;  but  this  size  does  not  necessarily 
have  to  be  followed,  nor  is  it  necessary  to  have  the  same  number  of  columns 
shown  in  the  illustration,  as  this  would  depend  entirely  upon  the  nature  and 
volume  of  the  business.  In  a  number  of  the  forms  a  broken  line  appears  in  the 
middle,  which  indicates  that  the  size  has  been  reduced  and  only  the  top  and  bot 
tom  of  the  form  shown.  The  length  or  depth  of  the  form  would  not  interest  the 
reader,  and  would  only  occupy  unnecessary  space. 

Although  every  business  man  has  experienced  numerous  changes  in  his  sys 
tems  of  cost  and  stock  keeping,  to  say  nothing  of  the  changes  in  bookkeeping,  it 
is  safe  to  say  that  many  of  these  changes  would  not  have  been  necessary  had  he 
and  his  assistants  been  familiar  at  the  outset  with  the  principles  governing  these 
matters.  Although  it  is  not  possible  for  a  technical  man— that  is,  the  average 
public  accountant — to  design  and  install  factory  systems  purely  from  accounting 
principles,  it  is,  on  the  other  hand,  equally  impossible  for  the  manufacturer  or 
any  of  his  assistants,  with  the  knowledge  concerning  only  manufacturing,  to 
devise  a  system  without  at  the  same  time  possessing  the  technical  knowledge 
of  the  public  accountant  as  to  theory  and  underlying  principles.  This,  it  might 
be  stated,  is  the  principal  reason  why  the  accountant  is  so  often  unsuccessful  in 
installing  systems;  and  the  same  reason  explains  the  failure  of  the  manufacturer 
in  his  own  efforts  to  obtain  the  desired  results  along  these  lines.  Neither  under 
stands  the  other,  and  his  difficulties.  The  object  of  these  remarks  is  to  show  that 
both  are  at  fault— the  manufacturer  or  business  man,  because  he  is  wanting  in 
knowledge  which  he  unquestionably  should  possess;  and  the  ordinary  accountant 
or  expert,  because  he  attempts  to  use  a  theory  that  is  correct  without  being  thor 
oughly  familiar  with  manufacturing  as  a  whole. 

The  accountant  should  be  sufficiently  familiar  with  the  conditions  of  manufac- 


66  FACTORY   ORGANIZATION   AND    COSTS 

ture  and  the  difficulties  involved  to  be  able  to  apply  his  principles  and  theories 
in  a  manner  that  will  procure  the  desired  results  without  interfering  with  pro 
duction,  or  seeking  to  obtain  information  in  a  way  that  is  absolutely  impractical. 
In  this  connection  it  may  be  stated  that  the  designs  and  forms  presented  are  the 
result  of  practical  experience  and  a  knowledge  of  manufacturing  conditions  and 
the  technique  involved  in  applying  the  principles  of  cost  finding. 


CHAPTER  VII 

PURCHASE   REQUISITION 

Three  Different  Designs — Explanations  Concerning  Use. 


(Form  1  A) 


PURCHASE  REQUISITION.                               No 
DATE    

QUANTITY 

ARTICLE 

DATE  WANTED 

__  —  —  ' 

__  

_  

^—  

Signed:                                                                                                   Approved: 

Standard  Size  6H  f. 


PURCHASE  REQUISITION. 

Purchasing  Agent) 


Please  order  the  following  articles 


Standard  Size  6H  x 


68 


FACTORY  ORGANIZATION  AND  COSTS 


(For 


PURCHASE  REQUISITION.                                          No 

Co 

„          j 

90 

"or  the  use  of 

(Purchasing  Agent) 

Date  Wanted  

QUANTITY 

ARTICLE 

\ 

Ordered 

Signeri 

ApprouoH  hy 

1    Purchase  Order  No. 

Standard  Size  6K  *  8M 


A  DESIGN  of  this  description  is  intended  as  an  aid  to  memory  and  might  be 
termed  an  organization  form,  its  purpose  being  to  facilitate  the  transactions 
between  the  purchasing  agent  or  general  office,  and  the  factory  or  storeroom,  in 
connection  with  the  purchase  of  materials  and  supplies.  Inasmuch  as  this 
form  does  not  constitute  any  prominent  part  in  a  system,  and  as  its  purpose  is 
accomplished  after  the  goods  have  been  ordered  and  received,  almost  any  modi 
fication  may  be  made  in  the  form,  such  as  the  addition  of  more  columns  for  specific 
purposes.  It  may  also  be  made  out  in  duplicate  or  triplicate  for  use  in  reference 
and  filing.  These  matters  may  all  be  left  to  the  judgment  of  the  user,  as  they 
will  not  interfere  in  any  way  with  any  system.  It  might  be  well,  however,  to 
state  that  this  form  should  not  be  used  as  a  receiving  report,  which  is  sometimes 
done,  for  reasons  that  will  be  explained  later  in  connection  with  forms  on  that 
subject. 

A  form  of  this  kind  should  originate  either  from  the  foreman  of  the  depart 
ment  requiring  the  goods,  or  from  the  stock  clerk — that  is,  the  one  in  charge  of 
the  stock.  Where  a  regular  stock  clerk  is  employed  all  requisitions  should  be 
made  out  by  him,  and,  of  course,  the  conditions  under  which  this  is  done  would 
vary.  Where  a  storeroom  is  properly  organized  and  the  stock  arranged  in  racks 
and  bins,  the  stock  cards,  showing  receipts,  deliveries,  and  daily  balances,  and 
the  bin  cards,  showing  the  minimum  and  maximum  quantities,  should  be  the 
basis  of  the  issue  of  requisitions  on  the  purchasing  agent  or  the  office.  In  other 
cases,  even  where  a  stock  clerk  is  employed  and  where  special  orders  are  frequent, 
this  requisition  may  be  made  out  by  the  specification  .clerk,  the  estimate  clerk, 
or  the  superintendent  of  the  plant;  but  where  this  is  done  the  copy  of  the  requi 
sition  should  be  sent  to  the  stock  clerk  in  order  that  this  material  may  not  be 
used  for  any  other  purpose  than  that  for  which  it  was  ordered. 


PURCHASE   REQUISITION  69 

If  the  requisitions  are  made  out  in  duplicate  only,  they  may  be  filed  numeri 
cally  or  alphabetically,  according  to  two  general  subdivisions — that  is,  filled 
and  unfilled ;  but  other  subdivision  or  system  of  filing,  that  will  facilitate  keep 
ing  track  of  unfilled  orders,  is  entirely  in  keeping  with  the  purpose  of  such 
a  form. 


CHAPTER  VIII 

PURCHASE   ORDERS 
Four  Different  Designs — Explanations  concerning  Use. 


(Form  2  A) 


To 

Address 

Terms 

Please  Ship  the  following:- 

Place  our  order  number  on  all  Invoices  and  packages. 


A.  B.  C.  Co. 
New  York. 

PURCHASE  ORDER. 


Ship  via. 


No. 


190. 


QUANTITY 

DESCRIPTION 

You  are  hereby  authorized  to  furnish  the  above  articles  as  stated.  Acknowledge  receipt  of  this  order  and  state  when  you  will  ship. 
A.  B.  C.  Co. 
per 

Standard  Size  7}$  x.9 


A.  B.  C.  Co. 
New  York. 

To                                                                       PURCHASE  ORDER 

Purchase 
Requisiti 

Order  No. 

an  No  

Address  _ 

wn 

Please  ship  the  material  described  below. 
Place  our  Purchase  Order  Number,  Requisition  Number  and  Car  Number  on  all  Invoices. 
Send  duplicate  Invoices  and  Bill  of  Lading  for  each  shipment. 

SHIP  ON  OR  BEFORE 

DESCRIPTION 

QUANTITY 

PRICE 

V 

A.  B.  C.  Co. 
Per_  .  

A.  B.  C.  Co., 

New  York. 
Gentlemen:-  We  are  in  receipt  of  your  order  No._ 


(Tear  this  off  and  mail  to) 


-which  we  expect  to  ship 190. 

(Signed) 


Standard  Size  7>$  x  9 


PURCHASE    ORDERS 


71 


To 

Address 

Terms . 

Place  our  Order  Number  on  all  Invoices  and  Packages. 
Send  duplicate  Invoices  for  each  shipment. 


A.  B.  C.  Co. 
New  York. 

PURCHASE  ORDER. 


N 


Ship  to^. 
Add  rets. 


790. 


- 

OR  BEFORE 

DESCRIPTION 

QUANTITY 

RATE 

You  are  hereby  authorized  to  furnish  the  above  material  as  stated.  Acknowledge  receipt  of  this  order. 
A.  B.  C.  Co. 
per.  

Standard  Size  7* 


A.B.  C.  C 
New  Yor 

PURCHASE 
To  

0. 

_  .180.... 

ORDER.          ship  to...  .                           
Address  

Terms  

Place  our  Order  Number  on  all  Invoices  and  Packages. 

Via.   

DESCRIPTION 

OR  BEFORE 

QUANTITY 

RATE 



AMOUNT 

CHARGE  TO 

:    —  • 

You  are  hereby  authorized  to  furnish  the  above  material  as  stated. 
Acknowledge  receipt  of  this  order.           A  B   C  Co 

72 


FACTORY   ORGANIZATION   AND    COSTS 


(Form  2  D)  Original 


The  A.  B.  C.  Co., 
New  York. 
Name                                             .      DIIDOLJACIT  ORP1FR           'mP 

No. 

ortant:-Put  this  number  on 
r  Invoice 

Arirfress"    "                                                PU  RCH  ASE  UKU  tK 

Terms  Ship'via  

DATE  WANTED 

DESCRIPTION 

QUANTITY 

RATE 

You  are  h 
described 

Note:-Sen 

ereby  authorized  to  furnish  the  above  articles 
,  If  you  cannot,  please  advise  us  at  once. 
The  A.  B  C.Co. 

d  bill  same  day  shipment  is  made.                            (purchasing  agent) 

Standard  Size  «X  x 


(Form  2  D)  Duplicate 


The  A.  B.  C.  < 
New  York. 
Name                        PURCHASE  C 

;o., 
RDER. 

Ship 

No  

mportant:-Put  this  number  on  your  Invoice 
via..             .       _. 

Terms  

DATE  WANTED 

DESCRIPTION 

QUANTITY 

RATE 

AMOUNT 

CHARGE  TO 

. 

You  are  hereby  authorized  to  furnish  the  above  articles 
idescribed:  if  you  cannot.please  advise  us  at  once. 
The  A.  B.C.  C 
[  Note:-Send  bill  same  day  shipment  is  made. 

O. 

(purchasing  agent) 

THIS  form  is  the  outgrowth  or  the  result  of  the  purchase  requisition,  where 
one  is  in  use;  but  a  purchase  order  is  frequently  used  without  a  purchase  requisi 
tion,  especially  in  a  small  business,  where  the  superintendent  or  one  of  the  partners 
acts  as  purchasing  agent.  Ordinarily  this  form  does  not  constitute  a  principal 
part  of  a  general  system.  It  is  used  for  the  transactions  between  the  individual 
or  company  ordering  the  goods  and  the  individual  or  company  from  whom  goods 
are  ordered,  and  thus  takes  the  place  of  correspondence  in  connection  with  the 
purchase  of  material. 

As  many  copies  as  may  be  desired  may  be  made  out  and  used  according  to 
the  requirements  of  the  business.  In  no  case,  however,  should  a  copy  be  sent 
to  the  receiving  clerk,  as  the  report  of  material  received  should  be  made  entirely 


independent  of  the  purchase  order,  and  the  latter  form  should  not  be  used  as  a 
receiving  report,  as  is  frequently  done.  Where  it  is  desired  to  keep  a  record  of 
goods  ordered  according  to  article,  it  is  advisable  to  execute  an  extra  copy,  to  be 
sent  to  the  stock  clerk  for  the  purpose  of  posting  the  article  ordered  to  the  stock 
records. 

An  extra  copy  may  also  be  made  out  to  be  attached  to  the  invoice,  or  sent  to 
the  accounting  department  as  an  aid  to  the  bookkeeper  in  checking  up  invoices, 
as  regards  the  prices,  and  in  order  to  advise  him  that  such  goods  were  actually 
ordered.  This  will  prevent  delays  in  the  bookkeeping  department  in  entering 
invoices,  and  will  relieve  the  purchasing  agent  from  the  necessity  of  checking 
them  up.  The  purchasing  agent  usually  has  his  hands  full  with  other  matters, 
and  is  not  always  able  to  check  up  invoices  as  promptly  as  the  accounting  de 
partment  requires  it;  and  this  in  turn  often  results  in  delaying  the  bookkeeping 
department  in  this  particular  branch  of  accounting,  and  sometimes  results  in  the 
loss  of  cash  discounts  that  would  otherwise  be  saved. 

The  receiving  report,  next  to  be  explained,  furnishes  the  purchasing  agent 
with  all  the  information  that  is  necessary  in  connection  with  keeping  track  of  the 
quantity  of  goods  received.  As  the  bookkeeper  would  also  receive  a  copy  of  this 
report,  the  invoice  could  be  readily  examined  and  passed  from  the  information 
furnished  by  these  two  separate  reports— viz:  a  copy  of  the  purchase  order  and 
a  copy  of  the  receiving  report.  Where  these  two  forms  are  attached  to  the  in 
voice  a  complete  check  is  established  on  entries  relating  to  purchases,  as  the 
purchase  order  is  made  out  by  one  individual,  the  receiving  report  by  another, 
and  the  invoice  by  an  independent  concern.  Where  any  system  or  care  is  used 
in  passing  on  entries  of  this  nature,  it  would  seem  difficult  to  allow  any  errors 
or  entries  of  an  improper  nature  to  be  made. 


CHAPTER  IX 

REPORT    OF   MATERIAL   RECEIVED 

Seven  Different  Designs — Explanations  showing  Conditions  under  Which  All  are  Used — Importance 

of  Using  a  Form  of  this  Character. 


(Form  3  A) 


REPORT  OF  MATERIAL  RECEIVED. 
DATE  190  

FROM 

PURCHASE 
ORDER  NO. 

QUANTITY 

DESCRIPTION 

RECEIVED  BY 

Standard  Size  6  x 


(Form  3  B") 


REPORT  OF  MATERIAL  RECEIVED. 

No. 

The  following  have  been  received  in  good  order. 

DATE                                       190 

PURCHASE 
ORDER  NO. 

FROM 

CAR  NO. 

QUANTITY 

DESCRIPTION 

DEPOSITED  IN 
BIN  NO. 

—  

•  

•              ~~ 



Date  of  Invoic 
Entered  by 

e  

Reef 

»ived  by 

Standard  Size  0  x  i 


REPORT    OF   MATERIAL   RECEIVED 


75 


Korn     il      Oriirinal 


REPORT  OF  MATERIAL  RECEIVED.    No. 

Purchase  Order 
Favor  of...    .^^^^^^^^^ 

QUANTITY 

ARTICLES 

_GROSS  TARE  NET 

Date  Received Date  of  Invoice.. 

jeceived  by _ _ Entered  by 

Standard  Size  a%  x.  6 
(Form  3  C)  Duplicate 

REPORT  OF  MATERIAL  RECEIVED.     No. 
Purchase  Order. 

-  No 

Favor  of 

QUANTITY 

ARTICLES  1 1     RATE  COST  CHARGES         TOTAL  COST 

GROSS  TARE  NET 

Date  Received  Date  of  Invoice 

Received  by.___  Entered  by  __ 


76  FACTORY   ORGANIZATION   AND    COSTS 


(Form  3  D)  Original 


REPORT  OF  MATERIAL  RECEIVED. 

Purchase  Order  No. No... 

Requisition  No -  DATE 

CLASSIFICATION  QUANT|TY  DESCRIPTION  CHARGE  TO 

NO. 

Invoice  190 _  Received  by 

Entered 

Standard  Size  5%  x  6 
(Form  3  D)  Duplicate 

REPORT  OF  MATERIAL  RECEIVED. 

Purchase  Order  No No 

Requisition  No. DATE 

Received  from___  

CLASSIFICATION   i  COST 

QUANTITY  DESCRIPTION  CHARGE  TO 

NO.  INVOICE  DISTRIBUTION  TOTAL 

OF  CHARGES  COST 

Invoice.-.  ...190 Received  by  ... 

Entered^. 


Standard  Size  6  x 


77 


(Form  3  E)0riirinal 

REPORT  OF  MATERIAL  RECEIVED 

Purchase  Order  No.                                                                                   No 

Narv.t! 

DESCRIPTION 

QUANTITY 

Charges                                          Department                          Account 

Received  by                                                                           Entered  by 

Standard  Size  6}<  x 


(Form  3  E)  Duplicate 


1 

REPORT  OF  MATERIAL  RECEIVED 

'urchase  Order  No.  __       ...                                                  No. 

Carrie 

DESCRIPTION 

QUANTITY 

fUK:    HA-,: 
CHI.   [ 

RATE 

»v      INT 



" 

—  | 

Charges.   --    -           .Department.--   --      -        .Account.  . 

Received  by                                                         Entered  by 

Staudurd  Size,  < 


78 


FACTORY  ORGANIZATION  AND  COSTS 


(Form  3  P)  Original 


REPORT  0 

Purchase  Order 
Name 

F  MATERIAL  RECEIVED 
No 

No.._ 

190  

ARTICLE 

LOT  NO. 

DESCRIPTION 

QUANTITY 

Received  by:                                  Entered  by: 

Standard  Size  8  x 


(Form  3  F)Duplicate 


Purchase  Order 
Name 

REPORT 

No,. 

OF 

MATERIAL   RECEIVED 
190 

No, 

ARTICLE 

COST 

LOT  NO. 

DESCRIPTION 

QUANTITY 

INVOICE 

DSTRIBUTION 
CHARGES 

TOTAL 

RATE 

CHARGES 

OPERATING  LEDGER 

DESCRIPTION 

AMOUNT 

ACCOUNT 

COLUMN 

FOLIO 

AMOUNT 

j     Received  byu 

i 

b/: 

Standard  Size  8K  * 


BEPORT  OF  MATERIAL  RECEIVED 


79 


(Form  3  Q) 


REPORT  OF  MATERIAL  RECEIVED. 

Purchase  Order  No.___ 


No. 


Requisition  No. 

Name__  ....Date. 


ARTICLE 


DESCRIPTION 


Received  by: 


Entered  by 


Standard  Size  8%  x 


(Form  3  G  Duplicate) 


Purchase  Order 
Requisition  No. 

Name 

No. 

REPORT  OF  MATERIAL 

RECEIVED 

No.. 

Date    . 

ARTICLE 

COST 

ITEM  NO.     CLASS.  NO. 

DESCRIPTION 

pPR~ic'E 

RATE   |        AMOUNT 

$ 

. 

*» 

i                            CHARGES 

DISTRIBUTION 

DESCRIPTION 

AMOUNT 

DEPARTMENT 

ACCOUNT 

FOLIO        :       AMOUNT 

Receiv 

ed  by:  

.......       .       _.                              Entered  by: 

Standard  Sizt  &X  x  11 


THE  usual  method  of  recording  data  of  this  nature  is  by  means  of  a  receiving 
book  which  is  kept  by  some  individual  employed  for  this  purpose.  The  chief 
objection  to  this  system  is  that  it  is  cumbersome  and  unhandy  for  the  purchasing 
agent  and  bookkeeper,  in  keeping  track  of  goods  ordered  and  in  verifying  invoices. 
Unless  a  record  of  this  kind  is  indexed  in  a  very  thorough  manner,  mistakes  are 
hard  to  detect,  and  it  often  means  delays  and  hardship  on  all  of  the  clerks  inter 
ested  in  information  of  this  nature. 

In  using  a  form  of  this  kind,  such  as  those  shown  in  this  chapter,  the  reader 
should  be  careful  in  his  selection  of  the  form  to  be  adopted  and  should  be  guided 


80  FACTORY   ORGANIZATION   AND    COSTS 

by  the  use  which  he  intends  making  of  the  information.  The  number  of  the 
copies  to  be  made  out  will  depend  upon  the  manner  in  which  the  form  is  to  be 
used.  As  an  illustration,  if  it  is  not  to  be  used  in  connection  with  a  stock  system, 
and  only  for  the  purpose  of  advising  the  purchasing  agent  or  bookkeeper  of  the 
quantity  and  quality  of  the  goods  received,  then  a  simple  form  should  be  adopted, 
and  any  changes  as  to  columns,  captions,  or  phraseology  generally,  may  be  made 
according  to  the  discretion  or  ideas  of  the  user. 

Where  the  form  is  to  be  used  in  connection  with  a  stock  system,  an  extra  copy 
may  be  made  out  for  the  use  of  the  stock  clerk.  This  form  should  be  designed 
and  arranged  so  as  to  facilitate  posting  and  prevent  errors.  More  regard  should 
be  given  to  design  than  in  the  former  case,  as  in  this  instance  it  would  be  used 
for  two  specific  purposes,  and  the  stock  clerk  and  purchasing  agent  should  both 
be  considered  in  arranging  the  design.  If  the  stock  records  are  to  be  kept  both 
in  quantity  and  value,  a  form  should  be  adopted  with  columns  for  that  purpose; 
and  where  the  stock  is  classified — that  is,  where  a  classification  number  is  used 
instead  of  the  name  of  an  article,  a  "Classification  Number"  column  should  appear 
on  the  form.  Likewise,  if  the  location  of  the  stock — that  is,  the  bin,  rack  num 
ber,  or  department — is  to  be  kept  track  of,  then  provision  should  be  made  on 
this  form  for  this  information;  otherwise  the  stock  clerk  would  be  unable  to  keep 
his  accounts  in  proper  accord  with  the  stock. 

If  goods  are  purchased  f.  o.  b.  shipping  point,  and  heavy  charges  for  trans 
portation  incurred  by  the  buyer,  thus  affecting  the  actual  cost  of  the  article,  it 
will  be  found  convenient  to  arrange  the  receiving  report  so  as  to  provide  columns 
for  distributing  or  pro-rating  these  transportation  charges  over  the  original  pur 
chase  price  of  the  goods,  thus  showing  the  actual  cost,  as  delivered,  and  indicat 
ing  a  new  rate  per  article.  Some  of  the  designs  shown  illustrate  how  this  may 
be  done  to  advantage. 

If  it  is  desired  to  furnish  a  copy  of  this  report  to  the  bookkeeping  depart 
ment,  the  account  and  the  department  chargeable  should  also  appear,  in  order  to 
facilitate  the  bookkeeping  and  assure  an  accurate  distribution  of  expenditures  or 
charges.  In  such  a  case  it  is  advisable,  and  good  practice  from  an  accounting 
standpoint,  to  attach  a  copy  of  this  report  to  the  invoice  for  reference  and  record. 

The  principal  reason  for  making  out  a  report  of  this  kind,  instead  of  following 
the  usual  methods  of  having  the  invoice  checked  up,  is  to  obtain  accurate  results 
and  to  insure  an  actual  count  and  inspection  of  the  goods  said  to  be  received, 
without  depending  upon  the  honesty  or  carefulness  of  the  one  receiving  the  goods 
or  checking  them  off.  It  has  been  found  from  actual  experience  that  this  is  a 
very  weak  point  in  the  system  of  many  establishments,  and  thousands  of  dollars 
are  lost  annually  by  paying  invoices  for  goods  said  to  be  received,  whereas,  in 


REPORT    OF    MATERIAL    RECEIVED  81 

fact,  the  amount  charged  was  never  actually  received.  This  has  been  clearly 
demonstrated  from  the  actual  use  of  the  forms  herein  mentioned,  and  the  amount 
of  loss  from  this  source  is  not  exaggerated.  The  use  of  a  form  of  this  kind  will 
give  one  the  satisfaction  of  knowing  that  he  is  getting  the  quantity  of  goods  for 
which  he  is  paying.  It  is  not  advisable  to  send  the  invoice  or  a  copy  of  the  pur 
chase  order  to  the  individual  in  charge  of  the  receiving  department,  as  he  might 
be  careless  in  checking  off  and  "O.  K.-ing"  invoices  or  purchase  orders  that  were 
not  correct.  As  a  matter  of  fact,  whenever  this  form  has  been  put  in  operation 
this  condition  has  been  shown  to  have  existed  in  each  and  every  instance. 


CHAPTER  X 

STOCK  RECORD — RAW  MATERIAL 

Nine  Different  Forms— Conditions  under  Which  to  Use  in  Quantity  Only,  or  Value  and  Quantity- 
How  Interlocked  with  Other  Records— Value  to  Purchasing  Agent— Proof  of— Value  of  the 
Form. 


(Form  4  A) 


Last  P 
Last  Q 

Freigh 
Article 

rice                     n;=                                      STOCK  CARD                              Classification  No  

uotat 
t&E 

on  Dis.  
xpress  

RAW  MATERIAL                               Ma) 
Mir 

imum 
imum 

DATE 

SHEET 

QUANTITY 

COST 

NUMBER 

ORDERED 

RECEIVED 

DELIVERED 

RATE 

AMOUNT 

Standard  Size  1x6 


(Form  i  B) 


STOCK  CARD 

RAW  MATERIAL 


Article. 


Classification  No._. 

Maximum 

Minimum 

.Bin  No.._ 


Standard  Size  1x6 


STOCK  RECORD— RAW  MATERIAL 


83 


(Form  4  C) 


STOCK  CARD 

RAW  MATERIAL                 Classification  No. 

Maximu 
Minimur 

m 

n 

Article  Pattern  No  Location 

RECEIVED 

DELIVERED                                           BALANCE 

DATE 

SHEET  NO. 

QUANTITY 

DATE 

SHEET  NO. 

QUANTITY 

DATE 

QUANTITY 

Standard  Size  4x0 


84 


u 

0 

z 

QUANTITY 

_J 
< 

6 

z 

c 
O 

*    £  £   c- 

CD 

u 

s  ii.l 

8  -1  -^  3 

j5    S.E   £ 
0  2S^ 

QUANTITY 

1- 
uj    O 
I     z 

LIVERED 

QUANTITY 

u 

0 

1- 

LLJ    d 

X     z 

r 

1- 

LU    -l 

u  < 

QUANTITY 

*: 

ICC. 
LJ 

CO    H 

1- 
uj      o 
I     z 

M 

>"! 

&    Z 

O  < 

I—     OC 

CO 

Q 

QUANTITY 

\ 

bo 

K 

RECEIVE 

K 

LU      O 

I    z 

PURCHASE 
ORDER  NO. 

0 

Q 

m   2 

°a 
tt 

ORDERE 

QUANTITY 

o> 
o 

'-c 

PURCHASE 
ORDER  NO. 

STOCK   RECORD— RAW    MATERIAL 


85 


(Form  1  E) 

Minimum 
Maximum 

DATE 

ORDER 
NO. 

QUANTITY 

ORDERED  FROM 

REQ. 
NO. 

DATE 

RECEIVED 

DATE 

CELIVEHED 

BALANCE 

PRICE 

VALUE 

Standard  Size  .">  x  8 

Form  No.  4  F 


RECORD      OF      RAW      MATERIAL. 
Fur  the  month  of                                                   l_'i 

Articles 

„[  penal  ) 

Purchases 

Deliveries 

1m  eutorj 
(  rn.    uf  IKriod  ) 

yuan. 

Kate 

AtnouD 

QOHh 

iUte 

Amount 

Quan. 

iUte 

Aolouot 

lluan. 

Rate 

Au>«UQt 

Standard  Size  10'. •  z  1J,' 


86 


FACTORY    ORGANIZATION   AND    COSTS 


DC 
UJ 

I- 


< 

QC 


O 
O 

CO 


a    =    5 

111 

33- 

5  'A  X 


88 


FACTORY  ORGANIZATION  AND  COSTS 


(Form  4  I) 


STOCK  SHEET                          Classifies 
RAW  MATERIAL                            Maximur 
Minimum 
Article  

ition  No  

n  

1  

RECEIVED 

DATE 

FROM 

PURCHASE 
ORDER  NO. 

REPORT  OF 
MATERIAL 

RFCEIVED  NO. 

QUANTITY 

PRICE 

AMOUNT 

REMARKS 

DELIVERED 

BALANCE 

DATE 

SHEET 
NO. 

STYLE 

HO. 

SIZES 

QUANTITY 

PRICE 

AMOUNT 

QUANTITY 

AMOUNT 

Standard  Size  6  x  ft 


THE  remarks  made  in  connection  with  the  preceding  forms  apply  largely  to  a 
record  of  this  description,  as  this  form  is  for  the  compilation  of  information  ob 
tainable  from  the  forms  previously  mentioned ;  and  also  for  recording  information 
of  material  used  or  goods  taken  out  of  stock  on  forms  to  be  mentioned  later. 

A  perpetual  inventory  of  materials  and  supplies,  carried  in  stock,  may  be 
obtained  by  the  use  of  any  of  these  forms;  and  this  information  may  be  recorded 
so  as  to  show  the  articles  on  hand  as  to  quantity  only,  or  so  as  to  show  not  only 
the  quantity  of  each  article  on  hand  but  also  the  cost.  The  particulars  contained 
on  this  form  will  be  determined  by  the  purpose  for  which  the  information  is  to  be 
used.  If  a  cost  system  is  not  in  operation,  and  it  is  only  desired  to  establish  a 
safeguard  on  the  stock  on  hand  and  to  assist  the  purchasing  agent  in  buying,  it 
will  be  necessary  to  keep  the  stock  record  of  articles  in  quantity  only,  and  the 
cost  may  be  omitted.  In  either  case  a  separate  card  or  sheet  should  be  used  for 
each  article  where  the  stock  is  active.  But  where  it  is  inactive,  and  where  the 
purchases  are  infrequent  and  the  stock  is  used  in  large  quantities,  then  a  record 
may  be  kept  with  all  of  the  articles  listed  on  one  or  several  sheets,  with  several 
blank  lines  left  between  articles.  Both  methods  are  illustrated,  and  the  user 
must  decide  which  form  is  best  suited  for  his  particular  purpose. 

In  the  operation  or  use  of  forms  of  this  character,  it  should  be  kept  in  mind 
that  the  necessary  data  relative  to  goods  received  and  delivered  should  be  taken 
from  a  regular  form  filled  out  by  some  one  responsible  for  the  information  ob 
tained,  as  confusion  will  result  if  entries  are  made  in  these  records  from  personal 
knowledge  or  hearsay,  and  it  will  be  impossible  to  depend  on  the  results  shown 


STOCK   RECORD— RAW   MATERIAL  89 

or  to  verify  any  of  the  entries  should  discrepancies  occur.  For  this  reason  a  regu 
lar  method  of  posting  from  separate  and  independent  reports  should  be  followed, 
both  as  to  material  received  and  material  consumed  or  delivered.  Where  this 
plan  is  followed  and  discrepancies  occur,  the  balance  shown  will  at  least  repre 
sent  facts  that  will  admit  of  verification,  and  it  will  be  possible  to  conduct  an 
investigation  which  should  place  the  responsibility  where  it  belongs. 

If  it  is  desired  to  keep  the  stock  records  so  as  to  show  the  quantity  ordered, 
received,  delivered,  or  used,  and  the  balance  on  hand  according  to  article,  all  of 
this  information  should  be  taken  from  the  Purchase  Order,  Report  of  Material 
Received,  and  Material  Requisition  or  Bill  of  Material,  respectively,  and  not  from 
any  verbal  information.  In  some  cases  it  is  desirable  to  provide  columns  in  the 
stock  records  to  show  goods  actually  on  hand,  and  that  part  reserved  for  the 
completion  of  a  particular  order,  and  then  the  forms  should  be  used  and  designed 
in  such  a  way  as  to  indicate  for  what  purpose  the  stock  was  reserved,  and  the 
quantity.  Thus,  not  only  the  actual  balance  of  stock  on  hand  would  be  shown 
and  the  quantity  reserved  for  some  particular  order,  but  the  balance  available  for 
other  purposes  would  also  be  indicated. 

In  this  way  the  stock  clerk  or  purchasing  agent  can  keep  track  of  the  maxi 
mum  and  minimum  quantity  which  it  is  desired  to  carry  in  stock,  by  keeping  in 
mind  the  fact  that,  although  the  maximum  may  be  actually  on  hand,  yet  the 
reserve  of  a  certain  amount  for  some  special  purpose  really  reduces  the  balance 
of  stock  on  hand  available  for  other  purposes.  Therefore,  this  stock  reserve 
should  be  deducted  from  the  balance  of  stock  on  hand  in  ascertaining  the  actual 
amount  of  stock  available.  This  should  not  be  done  in  the  records  showing  stock 
on  hand,  but  should  be  entered  in  a  column  headed  "Available." 

It  will  be  found  advantageous,  where  the  same  article  is  carried  in  stock  in 
numerous  sizes,  colors,  etc.,  to  provide  separate  columns  in  the  stock  record  for 
each  of  these  varieties,  using  a  separate  sheet  or  card  for  each  article  but  entering 
all  the  sizes,  colors,  etc.,  on  the  same  record. 

At  any  particular  inventory  period,  the  stock  records  should  be  verified  with 
the  actual  inventory,  and  in  the  event  of  a  discrepancy — whether  overrun  or 
shrinkage — the  stock  record  should  be  put  in  accord  with  the  actual  inventory, 
after  the  cause  of  such  discrepancy  has  been  ascertained.  Unless  the  records  are 
reconciled  and  compared  with  the  actual  inventory,  and  investigation  made  to 
ascertain  the  cause  of  the  differences,  the  management  cannot  expect  to  have 
records  that  are  worth  the  time  and  trouble  involved  in  keeping  them.  Further 
more,  everyone  connected  with  this  particular  part  of  the  business  may  become 
more  or  less  careless,  and  this  will  result  in  compiling  information  which  is  inac 
curate  and  unreliable. 


90  FACTORY    ORGANIZATION   AND    COSTS 

It  will  be  found  advisable  to  adopt  a  method  of  verifying  a  certain  number  of 
articles  each  day  or  week,  without  any  one  knowing  in  advance  which  articles 
are  to  be  inventoried.  This  will  have  the  effect  of  keeping  alert  those  in  charge 
of  the  stock  as  well  as  those  in  charge  of  the  records,  and  will  be  productive  of 
results  that  cannot  be  obtained  where  the  inventory  is  taken  annually  or  semi- 
annually  only.  At  the  same  time  it  will  keep  the  stock  records  adjusted  from 
time  to  time,  and  render  it  unnecessary  to  take  an  actual  inventory  of  the  entire 
stock  at  any  one  time.  A  complete  inventory,  taken  annually  or  semi-annually, 
involves  a  great  deal  of  work;  nor  is  there  any  certainty,  when  this  work  has 
been  completed,  that  the  result  obtained  is  accurate.  A  great  deal  of  the  stock 
is  often  scattered  through  the  plant,  and  is  passing  from  one  operation  to  the 
other,  so  that  some  stock  is  very  often  entirely  omitted  or  included  twice  in 
the  inventory. 

The  keeping  of  stock  records  may  be  likened  to  the  keeping  of  cash  records. 
The  Cash  Book  indicates  the  amount  of  cash  received  and  the  amount  disbursed. 
The  balance  shown  by  the  Cash  Book  indicates  the  amount  of  cash  that  should 
be  on  hand,  which  amount  should  be  verified  by  an  actual  count.  It  is  thus  seen 
that,  in  counting  the  actual  cash  on  hand,  there  is  available  a  record  with  which 
it  should  correspond  and  which  checks  the  accuracy  of  the  count.  In  the  case  of 
material,  however,  when  no  stock  records  have  been  kept,  there  is  no  record 
available  with  which  the  inventory  as  taken  can  be  checked.  When  it  is  con 
sidered  how  much  money  is  involved  in  the  p'urchase  of  materials,  the  importance 
of  this  matter  is  evident.  Stock  records  are  intended  to  give  information  similar 
to  that  given  by  the  Cash  Book,  and  in  this  respect  the  latter  indicates  the  amount 
of  cash  that  should  be  on  hand,  the  former  the  amount  of  stock  that  should  be 
on  hand.  It  is  to  detect  and,  if  possible,  to  prevent  any  difference  between  the 
amount  of  stock  that  should  be  on  hand  and  the  amount  that  actually  is  on  hand 
that  a  stock  system  should  be  introduced. 

A  difference  or  shrinkage  in  material  is  the  equivalent  of  so  many  dollars 
actually  lost,  without  any  good  or  sufficient  explanation  therefor;  and  yet  the 
average  business  man  will  allow  differences  of  this  kind  to  be  adjusted  and  per 
manently  disposed  of  without  seemingly  appreciating  or  understanding  that  he  is 
charging  perhaps  a  heavy  loss  and,  in  some  cases,  an  unnecessary  one  against 
the  profits  of  his  business.  The  same  man  would  not  for  a  moment  allow  his 
bookkeeper  to  charge  ten  dollars  against  his  profit  and  loss  account  for  a  shortage 
in  cash,  without  experiencing  a  great  deal  of  alarm.  And  yet,  where  is  there  any 
real  difference? 


CHAPTER  XI 

PRODUCTION    ORDER 

Sixteen  Kinds  of  Production  Orders  Illustrated — General  Use — Duplicates — Conditions  under  Which 

they  are  Used — Relation  to  Costs. 

(Form  5  A  Origr.al) 


Make 

FOUNDRY  PRODUCTION  ORDER                        NQ 

for                                                                                                                                                               Da 

te 

- 

Order  No.  _                                                      Wanted  _ 

Completed 

DESCRIPTION 

Patt 

f.jn  No,                                                        Kind  of  Casting 

Quantity 

We 

pht                                                                    Cost  per  Pound  t 

Amount  <£ 

Descript  on     . 

PRODUCTION                                                                   | 

DELIVERED 

! 

ii     r~ 

ii                      'i 

i     .      •'     ii              .                dJ 

Received:                                                                                      Approved: 

Standard  Size  8>£  *  11 
<.Fonu  5  A  Duplicate) 

Make 

FOUNDRY  PRODUCTION  ORDER                           N 

for                                                                                                                                          D 

0. 

ate 

Their 

Order  No.                                                          -     Wanted 

Completed 

DESCRIPTION 

Pat) 

ern  NO                                                  Kind  of  Casting 

Quantity 

We 

ght                                                        Cost  per  Pound  $ 

Amount  $ 

Description     . 

PRODUCTION 

COST 

\ 

,       i-p^        , 

1                                :                :i                                            :               '                      t  

j 

\  —  LLLl  — 

r                           :;                                                                                                                                               j 

1  |  i  1 

! 

1 

Received:                                                                                                Approved. 

Standard  Sixe  »X  *  11 

92 


FACTORY   ORGANIZATION   AND    COSTS 


(Form  5  B)  Original 


1 

1 

FOUNDRY  PRODUCTION  ORDER           NO 
dake  for                                                                                                -      Da 

te 

3ate  Wanted                                                                                    D 

ate  Complet 

ed_. 

DESCRIPTION 

Pattern  Nn                                                                Kinrl  of  Casting                                                                  Quantity 

Weight  Cost  p«r  Pound                                                       Amount 

PRODUCTION 

DELIVERED 

DESCRIPTION 

DATE 

MADE 

DEFECTIVE 

GOOD 

DATE 

QUANTITY 

RECEIVED  BY 

Metal 

Indirect   '/t 

Total 

Rate 

Amount 

Approved: 

Correct 

Cost  Clerk. 

Standard  Size  TX  * 


(Form5B)Duplicate 


1 
1 

FOUNDRY  PRODUCTION  ORDER 

dake  for 

No.— 

Date... 

Date  Wanted 

Da 

te  Completed 

DESCRIPTION 

Pattern  No.                                                         K'"^  "f  C"*'^                                                              Quantity 

PRODUCTION 

COST 

DESCRIPTION 

DATE 

MADE 

DEFECTIVE 

GOOD 

Metal 

Cores 

Moulds 

lnHir»<-t    £       

Total 

Rate 

Amount 

Approved:  

Correct 

Cost  Clerk. 

Standard  Size  7Jf  x 


PRODUCTION    ORDER 


93 


Date  Completed 


(Komi.-)  C)  Original 


Date  Wanted 


PRODUCTION  ORDER 


.No 

Date  Issued 


PATTERN   CLERK 


Owner 

Pieces  Ordered 

Total  Weight 

Instructions 


Price  per  Pound 


Pattern  No._ 
Weight  Each. 
Amount  $ 


Entered  by: 


Approved  by: 


Date  Wanted 

.Date  Completed 


Standard  Site  5>f  x  8>i 
(FormS  C)  Duplicate 


PRODUCTION  ORDER 


-No 

Date  Issued 


.Owner  __ 
Pieces  Ordered 
.Total  Weight__ 
-Instructions 


FOUNDRY 


.Price  per  Pound 


.Pattern  No,_ 
Weight  Each. 
. Amount  $ 


Entered  by: 


Approved  by: 


Standard  Size  5J<  x  8^ 


(Form  5  C  )  Triplicate 


PRODUCTION  ORDER 


.Date  Wanted..... 
Date  Completed 


.No 

Date  Issued. 


SHIPPING  CLERK 


_Owner_ 


.Pieces  Ordered. 

.Total  Weight  _ 

Instructions 


Entered  by: 


Price  per  Pound 


Pattern  No._ 
Weight  Each- 
Amount  


Approved  by: 


Standard  Size  5)f  x 


94 


FACTORY  ORGANIZATION  AND  COSTS 


(Form  5  C)  Quadruplicate 


Date  Wanted..— 
Date  Completed. 


PRODUCTION  ORDER 


No 

Date  Issued. 


COST   DEPARTMENT 


Owner 


Pattern  No. 


Pieces  Ordered 


Weight  Each 


Total  Weight 


Price  per  Pound 


Amount  $ 


Instructions 


MADE 


DEFECTIVE 


GOOD 


COST 


NO.  OF          WEIGHT          TOTAL 
PIECES  EACH  WEIGHT 


NO.  OF          WEIGHT          TOTAL 
PIECES  EACH  WEIGHT 


NO.  OF         WEIGHT  TOTAL 

PIECES  EACH  WEIGHT 


COST 


Entered  by: 


Approved  by: 

(Standard  Size  8X  x  11) 
(Form  5  D) 

CORE  ORDER 

Date 

To  Foreman  Core  Dept: 

Make sets  of  cores 

as  required  for  Patt.  No.. charging  all 

labor  to  Order  No. Advise  promptly  if 

delivery  cannot  be  made 

Foreman 


Standard  Size  3^  x  6 


PRODUCTION    ORDER 


95 


(Form  5E) 


O 


ORDER  No.  _ 
MOLDER  No. . 


PATT.  No.. 


CLEANING  DEPT 

BROKEN  O.K. 


TOTAL  WEIGHT 


(Form  5  F;  Original 


PRODUCTION  ORDER 

Date  Issued 

for--      _ Date  Promised.. 

JNSTRUCTIONS  COMPLETED 

DEPARTMENT  ~~[  SECTION  NO.  |;    QUANTITY    ff        DATE        ~    QUANTITY 

Charge  to_ 

Address __ 

Contractor Architect 

Correct Approved 

Standard  Size  8X  *  11 
(Form  3  F)  Duplicate 

PRODUCTION  ORDER  No.._ 

SHIPPING  DEPT.  Date  Issued 

Fjr  Date  Promised 

"  INSTRUCTIONS  COMPLETED 

DEPARTMENT  SECTION  NO.         QUANTITY  DATE  QUANTITY 

I 

Ship  to 

Mark 

B  L  in  name  of 

Express —  Freight  _ 

Correct Approved. 

Standanfslzc  8X  1 11 


9(5 


FACTORY   ORGANIZATION   AND    COSTS 


SUB-PRODUCTION  ORDER 

Date  Issued 

For Date  Promised. 

INSTRUCTIONS  COMPLETED 

DEPARTMENT  I   SECTION  NO.        QUANTITY 

Correct^-  Approved. 

Standai-d  Size  8K  *  11 


97 


(Form5H)Oritfinal 


Class 

Completed 


PRODUCTION  ORDER 


No... 
Date 


Quantity^ 


No.  in  set  _ 
Temper  No. 
Remarks 


Description. 


_No.  of  slots 

Template  No. 


Standard  Size  C>s  x  8% 


.Size  of  slots. 


Class 

Completed 


PRODUCTION  ORDER 


Quantity. 


No.  in  set 

Temper  No. 
Remarks 


Description. 


OPERATION 


No.  of  slots 

.Template  No. 


-Size  of  slots 


SKETCH 


Month  of_ 


RATE      PROCESS  COST 


Month  of. 


HOURS         RATE      PROCESS  COST 


TOTAL 
COST 


Standard  Size  (iH  x 


98 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  5  I) 


FACTORY  ORDER 

To  Foreman Department          Date, 

Charge  all  Material  and  Time  to  above  Order  No. 


No. 


DATE  PATTERN  DRAWING 

WANTED  NO.  NO. 


DESCRIPTION 


You  are  hereby  authorized  to  manufacture  the  above  articles  as  stated 
Inspected  by 

Received 19 

By._.  --Manager 

Standard  Size  o  xlX 
( Form  5  J) 

PRODUCTION  ORDER  No. 

Department  Date... 

DATE  WANTED    |  DESCRIPTION  QUANTITY 

Ship  to B/Lin  Name  of 

Via_ _  Date  to  be  shipped 

You  are  hereby  authorized  to  manufacture  the  above  articles 
as  stated. 

Standard  Size  7x8 

(  Form  5  K) 

Return  to  Office  immediately  upon  completion. 

FACTORY  ORDER  No.__ 

To  Foreman Department  Date. 

WANTED  I  DESCRIPTION  QUANTITY 

You  are  hereby  authorized  to  manufacture  the  above  articles,  as  stated;  material  to  be  drawn 
from  Store  Room,  as  per  Bill  o.f  Material  No 

Completed _.19_ ""  (Manager) 

(foreman) 

(Standard  Size  5  x  1\C) 


PRODUCTION    ORDER 


99 


(Form  !TL) 


PRODUCTION  ORDE 

To  Foreman         ..    .         Dnnartr 

.R                                No 

H-nt                                  Da 
the  following; 

te 

You  are  hereby  authorized  to  manufacture 

MATERIAL  REQUIRED  FOR  ABOVE  ORDER 

QUANTITY 

•  ' 

• 

.- 

1 

Received  by__                                                             Authorized  by 

Staudard-Sizc  5X 


(Form  5  M) 


PRODUCTION  ORDER 

No.  . 

Date  

ORDER  NO. 

QUANTITY 

SIZES 

Standard  Size£x8 

100 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  5  X) Original 


PRODUCTION  ORDER  AND  COST  SHEET 
Department 


No.. 


QUANTITY 


DESCRIPTION 


DIAGRAM 


Date  Wanted 19_ 

Complete 19.. 

Signed 


You  are   hereby   authorized  to  manufacture 
the  above  articles  as  stated 

(Superintendent) 


Standard  Size  5>f  x  8 


(Form  5  N)  Duplicate 


PRODUCTION  ORDER  AND  COST  SHEET 

Department 

No. 

19 

QUANTITY 

DESCRIPTION                                                                                        DIAGRAM 

Date  ' 
Comp 

Signe 

Wanted  ... 

19                    ' 

{o\i  are  hereby  authorized  to 
nanufacture  the  above  articles  as  stated. 

lete 

19                     \ 

d 

(Supcrmtenru-nt) 

MATERIAL 

LABOR 

PATTERN 

QUAN. 

DESCRIPTION 

RATE 

AMOUNT 

DATE 

WORKMAN 

MRS. 

RATE 

AMOUNT 

PARTICULARS 

RATE 

AMOUNT 

TOTAL 

DRAWINGS 

Total  Material 
Total  Labor 
Total  Pattern 
Total  Drawing 
Indirect 

TOTAL  COST 

TOTAL  LABOR 

TOTAL 

Standard  Size  8  x  10 


PRODUCTION    ORDER 


101 


(Form  50) 


SUB-PRODUCTION  ORDER 

Date  Wanted ...  —Department     Qrder  N(J 

Date  Completed,....        '_    Date  Issued 

DESCRIPTION 

Completed 

.--Foreman  Supenntendent 

Standard  Sire  1x6 
(Form  5  P)  Original 

T_  PRODUCTION  ORDER  &  COSTS 

lo Date  Issued.. 

Date  Completed Date  Wanted 

DESCRIPTION 

Standard  Size  5>4  x  8X 
(Korni.')  I')  Duplicate 

PRODUCTION   0~RDER  AND  COSTS       Date  |ssued 

D.it-    Comfl;.-t..d G-'     W       "     : 

DESCRIPTION 


OPERATIONS 


NO.1  NO. 2  NO. 3  N0.4 


N0.5 


NO. 6  N0.7 


NO.9  NO.10 


TOTAL  TIME 
COST  PER  HOUR 
PROCESS  COST 


DATE 


DESCRIPTION 


MATERIAL  USED 

QUANTITY 


SUMMARY 


Material 
Process  Cost 

Total  Cost 
Quantity 
Price 

Selling  Price 
G-oss  Profit 


Standard  Size  H^,  x  11 


102 


•"FACTORY  ORGANIZATION  AND  COSTS 


THE  purpose  of  this  form  is  to  substitute  written  instructions  to  the  factory 
or  manufacturing  departments  in  place  of  verbal  directions,  and  may  be  used 
under  certain  conditions  for  cost  keeping  purposes.  In  some  cases  it  may  also 
be  used  as  a  requisition  on  the  storeroom  for  materials  necessary  for  the  comple 
tion  of  the  order  or  product  to  be  manufactured. 

Whenever  orders  are  issued  covering  a  product  that  passes  through  several 
departments,  some  of  which  require  different  specifications,  or  whenever  the  work 
on  the  same  order  is  being  prosecuted  in  several  departments  simultaneously, 
Sub-production  Orders  may  be  issued  to  each  department  describing  only  the 
work  or  parts  to  be  manufactured  in  that  particular  department.  Otherwise  the 
same  Production  Order  may  be  issued  to  all  departments  alike,  by  using  a  mani 
folding  system  and  making  as  many  copies  as  may  be  necessary.  In  making  out 
these  duplicates,  it  may  be  an  advantage  to  issue  a  copy  of  the  order  to  the  ship 
ping  clerk,  stating  shipping  directions,  in  order  that  the  shipping  clerk  may  be 
in  possession  of  this  information  and  thus  facilitate  prompt  deliveries. 

The  stock  clerk  might  also  use  a  copy  of  the  order  with  good  results,  especially 
where  materials  are  given  out  on  requisition,  and  in  this  way  prevent  employees 
from  procuring  materials  and  supplies  for  which  no  order  has  been  issued.  This 
will  not  only  prevent  dishonesty,  but  will  also  be  the  means  of  bringing  to  light 
material  that  has  been  wasted  owing  to  shop  errors  or  defective  work.  The  stock 
clerk  should  check  off  the  material  that  relates  to  the  order  when  such  material 
is  delivered,  and  should  not  furnish  any  other  material  on  this  order  without  the 
authority  of  the  superintendent,  stating  the  reasons  for  the  extra  material. 

The  design  of  the  form  to  be  used  would  be  determined  by  the  conditions  of 
manufacture.  If  it  is  desired  to  use  the  form  purely  for  the  purpose  of  regulating 
production,  only  the  necessary  explanatory  matter  need  appear;  but  if,  on  the 
other  hand,  it  is  considered  advisable  to  utilize  a  copy  of  the  form  for  cost  keep 
ing  purposes,  separate  columns  with  the  proper  headings  printed  therein  should 
be  added  and  so  arranged  as  to  facilitate  posting  from  employees'  time  reports 
and  reports  of  material  delivered.  Where  it  is  desirable  to  keep  the  cost  by 
operation,  proper  columns  should  be  provided  for  each  operation,  and  the  form 
so  ruled  and  designed  as  to  enable  the  cost  clerk  to  add  overhead  charges  and 
ascertain  the  total  cost  of  the  order. 

In  issuing  orders  covering  contract  work  or  jobs  that  will  involve  large  ex 
penditures,  it  will  be  found  of  advantage  to  divide  the  order  not  only  according 
to  the  department  but  also  according  to  sections,  and  have  the  time  reported  by 
employees  in  such  a  way  as  to  show  the  time  consumed  in  each  particular  depart 
ment  on  each  section  or  part  of  the  work.  The  term  "section,"  for  example,  in  a 
contracting  business  would  apply  to  foundations,  walls,  partitions,  roofs,  etc. 


PRODUCTION    ORDER  103 

This  illustration  is  used  not  because  this  kind  of  a  form  relates  only  to  a  contract 
ing  business,  but  because  it  is  sufficiently  general  to  illustrate  the  meaning  of  the 
term  section  to  any  one  in  any  other  line  of  business.  If  section  numbers  are 
used  and  carried  through  the  cost  keeping,  it  will  be  possible  to  compare  the  cost 
with  the  estimates  and  to  follow  the  progress  of  the  work  in  a  more  intelligent 
way  than  would  be  possible  if  the  time  were  reported  in  total  only  and  posted  in 
one  amount  as  labor  on  that  particular  order. 

Several  designs  are  herewith  presented  to  suggest  different  ways  of  using  a 
form  of  this  description,  and  to  assist  the  reader  in  arranging  a  form  according 
to  the  requirements  of  the  business  without  experimenting  with  designs  that  have 
never  been  used  and  might  prove  impracticable. 


CHAPTER  XII 

BILL    OF   MATERIAL.       REPORT    OF   MATERIAL    DELIVERED 

Six  Different  Forms  of  Material  Requisitions — Two  Separate  Designs  of  Bills  of  Material,  and 
Four  of  Reports  of  Material  Delivered — Use  of  Forms  and  Conditions  under  Which  they  are 
Used — Relation  of  Bill  of  Material  to  Material  Requisition. 


(Form6  A) 


Department  __ 

MATERIAL  REQUISITION 

.  _    _     _                                                                         No 

ORDER  NO. 

ARTICLE 

QUANTITY 

Received  by 

Signed 

Standard  Size 


MATERIAL  REQUISITION 
No. 

Date                                     19  .      __ 

WANTED  FOR 

QUANTITY 

ARTICLE 

DATE  WANTED 

RECEIVED 

QUANTITY 

BY 

• 

Standard  Size  6  x.  8 


BILL    OF    MATERIAL 


105 


(FormOC) 


MA" 

Char£e                                 RFOI 
Article-    -  REUl 

FERIAL 
JISITION 

Date 

Order  No. 

Machine  No. 

Proce«»  _  

DESCRIPTION 

COST 

ARTICLE 

SIZE 

WEIGHT 

COUNT 

RATE 

AMOUNT 

Received  by:                                                       A 

Dproved  by 

(Standard  Size.*.*  6) 


(Form  6  D) 


MATERIAL  REQUISITION                                         No. 

-   ...Department                                                                       Date  

DESCRIPTION 

CHARGE 

ARTICLE 

SIZE 

WEIGHT 

COUNT 

MACHINE 
NO. 

PROCESS 

ORDER  NO. 

RATE 

AMOUNT 

Received  by: 

Approved  by: 

__  „  ,  —  —  :                   ^       •  •  ~ 

(Form  6E) 


Date 


Deliver  to 


Descriptic 


MATERIAL  REQUISITION 


For'Job  No. 


No.  of  Pieces 


C ost  per  Piece 


Lot  No. 


^Signed 


Cost 


Standard  Size  3  x  6 


106 


FACTORY    ORGANIZATION   AND    COSTS 


MATERIAL    REQUISITION 


Standard  Size  8K  x  11 


BILL    OF    MATERIAL 


107 


(Form  R  A) 


REPORT  OF   MATERIAL  DELIVERED 
For  the  month  of  19..  _J 

CLASSIFI 
CATION 
NO. 

:    •  •, 
NO. 

DEPARTMENT                                    ARTICLE. 

QUANTITY 

RATE 

AMOUN1 

' 

TOTAL 

Standard  Size  9^  x  12 


fFonn  8  B) 


REPORT  OF  MATERIAL  DELIVERED                                     N 

.    .    Department 

O. 

ate.  .        

ORDER  NO. 

ARTICI  L 

CHARGEABLE 

QUANTITY 

RATE 

AMOUNT 

Approve 

j-                                                                                    Correct:             .         

Standard  Size  9«  x  10>$ 

(Form  8  C) 


INTER-DEPARTMENT  DELIVERIES 

Department 

No. 

Date  

ORDER 

QUANTITY 

SIZE 

MATERIAL 

TO  DEPARTMENT 

Standard  Size  8X  *  11 

108 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  8  D) 

SUMMARY  OF  MATERIAL  REQUISITION 

DEPT.  A 

DEPT.  B 

CLASSIFICATION 

NO.  2 

NO.  3 

NO.   1 

NO.  2 

NO.  3 

NO.   1 

NO.  2 

NO.  3 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUN 

1 

NO. 

AMOUN 

' 

NO. 

AMOUN 

• 

Standard  Size  9X  x  10H 

MATERIAL   REQUISITION 

THE  explanations  given  in  connection  with  the  stock  records  before  men 
tioned  are  to  be  considered  in  the  selection  of  a  design  of  this  character.  Several 
designs  are  set  forth,  suggestive  of  different  conditions  under  which  these  forms 
may  be  used.  Forms  are  shown  which  may  be  used  where  a  separate  requisition 
is  issued  for  the  material  chargeable  to  a  particular  order  or  article.  In  such 
cases,  all  of  the  requisitions  for  each  order  are  to  be  kept  together,  according  to 
the  number  of  the  order.  However,  it  may  be  more  practical  to  use  the  same 
requisition  for  several  orders,  and  to  post  from  this  requisition  to  the  cost  records 
and  stock  records  according  to  the  articles  or  order  number  shown  on  the  requisi 
tion.  In  other  cases  it  may  be  best  to  use  one  requisition  each  day  for  all  articles 
issued  from  stock  and  chargeable  to  various  order  numbers  and  to  deliver  this 
one  requisition  or  report  to  the  office  at  night.  In  either  of  the  cases  mentioned, 
however,  the  individual  receiving  the  material  should  sign  the  requisition. 

The  object  for  which  the  information  is  being  obtained  will,  of  course,  regulate 
the  design  of  the  form.  It  would  not,  for  example,  be  necessary  to  put  the  cost 
of  the  material  delivered  on  the  requisition  if  no  cost  system  is  in  use,  or  if  the 
stock  records  are  kept  in  quantity  only.  The  nature  of  the  business  and  the 
purpose  for  which  the  information  is  to  be  used  will  regulate  the  descriptive  mat 
ter  to  appear  on  the  form. 

BILL    OF    MATERIAL 

All  the  remarks  relating  to  the  Material  Requisition  apply  also  to  this  form, 
which  is  substantially  a  requisition,  the  only  difference  being  that  a  design  of 
this  kind  is  more  practical  where  a  large  amount  of  material,  consisting  of  a  great 


109 

number  of  articles,  is  to  be  used  for  a  particular  order,  and  where  the  quantity 
is  known  at  the  time  the  order  is  issued.  It  should  be  sent  to  the  stock  clerk 
when  the  production  order  is  issued,  and  the  material  delivered  as  needed,  the 
individual  receiving  the  same  signing  in  the  columns  provided  for  that  purpose. 
In  case  more  material  is  required  than  is  called  for  by  the  bill  of  material  or  speci 
fication  sheet,  a  requisition  should  be  used  and  the  reason  stated. 

All  supplies  and  material  of  this  nature  should  be  drawn  out  of  stock  on  requi 
sition  in  the  usual  way;  and  this  is  true  whether  or  not  a  Bill  of  Material  is  used 
for  the  material  charged  on  orders.  In  other  words,  the  Bill  of  Material,  when 
used,  will  necessitate  the  use  of  a  requisition  also. 

In  the  event  that  materials  are  returned  to  stock  that  have  previously  been 
charged  to  orders,  the  regular  requisition  form  or  Bill  of  Material  may  be  used  for 
recording  this  information,  and  stamped  "Returned." 

The  information  furnished  by  this  form  should  be  posted  to  the  stock  records 
and  also  to  the  cost  records,  according  to  the  order  number,  article,  or  process 
chargeable. 

REPORT    OF   MATERIAL    DELIVERED 

In  a  business  where  numerous  articles  are  used  in  the  manufacture  of  the 
product  and  the  transactions  are  very  active,  it  will  be  found  of  advantage  to 
use  a  requisition  upon  which  columns  for  cost  keeping  are  not  provided,  and  to 
summarize  these  requisitions  on  a  form  similar  to  the  reports  of  material  here 
with  presented. 

The  total  quantity  used  and  chargeable  to  each  order,  product,  or  process 
for  the  entire  month  or  week  is  thus  obtained,  the  cost  for  the  total  quantity 
being  ascertained  by  making  one  calculation  or  extension. 

This  will  eliminate  a  great  deal  of  posting  to  the  stock  records,  as  well  as  to 
the  cost  records,  and  will  accomplish  the  same  results  with  much  less  work.  As 
has  been  stated,  this  design  is  only  for  the  purpose  of  summarizing  the  requisi 
tions  previously  mentioned,  and  is  to  be  regarded  as  a  summary  form  with  which 
the  factory  or  the  stock  clerk  need  not  be  connected. 

Inter-department  transactions  or  deliveries  of  material  in  process  of  manu 
facture  may  be  followed  by  the  use  of  a  form  of  this  character,  ruled  according 
to  the  requirements  of  the  business. 


CHAPTER  XIII 

TIME    TICKETS 

Twenty-eight  Different  Forms  Illustrated,  including  Clock  and  Time  Stamp-tickets — How  Used- 
Day  Work — Piece  Work — Time  Clock — Use  in  Cost  Systems — Differential  Rate. 


(Form  9  A) 


TIME  REPORT 
_    Departm 

ent              Date 
.    Cloc 

Name 

k  No— 

Occupation                                                                                Room, 

ORDER  NO. 

KIND 

OPERATION 

QUANTITY 

TIME 

RATE 

AMOUNT 

! 

Quantity  O.K.                                                               Price  O.K.                                  Amount  O.K. 

Standard  Size  £>$  x 


(For 


PIECE  WORK  REPORT 

Dr., 
C    . 
R-  , 

Name 

k  No 

Occupation 

m 

ORDER  NO. 

KIND 

OPERATION 

QUANTITY 

RATE 

AMOUNT 

Quantity  0 

K.-           -                        _          Price  O.K.                                         -      Amount  O.K. 

Standard  Size  5>£ 


TIME    TICKETS 


111 


(Form  9 C) 


TIME  REPORT 

Department 

Name Date 

Occupation    Clock  No. 

DAY   WORK 
ORDER  NO.     i  KIND  OPERATION  TIME  RATE  AMOUNT 

U 

n 

1 

PIECE  WORK 

ORDER  NO.     j  KIND  OPERATION  QUANTITY  RATE  AMOUNT 

I  ~T     " 

— i 

Quantity  O.K.  Price  O.K.  Amount  O.K. 

(Standard  Size  6x6) 
(Form  9  D) 

TIME  REPORT 

Name...  ":D.eP.a.rt.menL.  Weekending 

Occupation Clock  No- 

DAY  WORK 

ORDER  NO.)  KIND  OPERATION  [i    WON.       TUES.,    WE"       T ""  '"         -r~T., 

PIECE  WORK 

ORDER  r.O.  KIND  OPERATION  MOM.       TUES.       WE 

Quantity  O.K.  ..   PnceO.K.  ..    Amount  O.K. 


Standard  Size  8x8 


112 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  9  E) 


TIME  RE 
[ 

PORT 

)epartment 

Week  ending 
19 

Name                                      _    

Clock  No. 

Occupation                                                             -  Mac 

line  fs 

o  

Opera 

tion... 

DESCRIPTION  OF  WORK 

MON. 

TUES. 

WED. 

THUR. 

FRI. 

SAT. 

TOTAL 

RATE 

AMOUNT 

PRODUCTION 
HOURS 

PRODUCTION 
HOURS 

PRODUCTION 
HOURS 

PRODUCTION 
HOURS 

PRODUCTION 
HOURS 

PRODUCTION 
HOURS 

PRODUCTION 
HOURS 

Quantity  O.K.                                                  Price  O.K.                                          Amount  O.K. 

Standard  Size,  5^  x 


Name 
Occupal 

TIME  REPOR1 

' 
)epartment 

Date 

ion 

Clock  No. 

PRODUCTION 

TIME 

COST 

ORDER  NO. 

ARTICLE 

OPERATION 

MADE 

DEFECTIVE 

GOOD 

BEGUN 

FINISHED 

HOURS 

RATE 

AMOUNT 

Approved:                                                                                            Correct: 

Standard  Size  5  x 


TIME    TICKETS 


113 


Name 

Occupation. 


TIME  REPORT 

Department 


D»te 

Clock  No.. 


TIME  RATE  AMOUNT 


Time  OK. 


Amount  O.K. 


TIME  REPORT 

Department 

Name...                                                                                     Week  ending 
Occupation 

PRODUCTION  T  VL  CHARGE 

ARTICLE  I    MADE     '     DEFECTIVE      |    GOOD    ||   3EGUN   |      FINISHED      [  HOURS      OR,RER      MACHINE  PROCES 

Correct; 

Standard  Size  5^  *  7 
(Form  9  I) 

"TIME  REPORT 

Department        Date... 

Name                                                                                                                    —Clock  No, 
Occupation. Qrder  No 

PRODUCTION  TIME_, 

SECTION  NO.      T  OPERATION  |      MADE        DEFECTIVE       GOOD  BEGUN          FINISHED         H 

NOTE:      State  the  correct  time  engaged  on  each  section. 

Use  a  separate  sheet  for  each  order.  Approved: 

Deposit  this  report  in  the  box  provided  for  that  purpose. 

Standard  Size  5  x  «# 


114 


FACTORY   ORGANIZATION   AND    COSTS 


(Form  9  J) 


Nam 
Occi 

TIME  REPORT 

...Depart 

ment 

Date 

e                    -----                                         r- 

Clock  No. 
Contract  N 

jpation                                                                      -  -     .-  ..  .  -.  . 

0 

PRODUCTION 

TIME 

COST 

SECTION  NO. 

OPERATION 

BEGUN 

FINISHED 

HOURS 

RATE 

AMOUNT 

1 

Note:    St 
U 

d 

Approved 

e  a  separate  sheet  for  each  contract. 

Name 

TIME  R 
C 

EPORT 

epartment 

Week  ending 
If) 

( 

;iock  l> 
)perati 

Jo. 

Occupation  

Machine  No  .( 

on  

ORDER  NO.                                    OPERATION 

I  WON,    TUES. 

WED, 

THURS.    FRI. 

SAT. 

TOTAL 

RATE 

AMOUNT 

i 

i                                                     ' 

i 

I 

Quantity  O.K. 

Price  O.K.                                                Amount  O.K. 

Standard  Size  5J£  i. 


(Form  9  L) 


Na 
Tr< 
Bu 

TIM.E  REPOR 

me                                                                                    Dep 

T 
artment                   Week  e 
Rate 

ndlng  .  _ 

ide  

ilding   .       . 

Order  No  

OPERATION 

s 

V 

T 

w 

T 

F          =• 

TOTAL 

AMOUNT 

Correct                                                              Approved 

Standard  Size  1 


TIME    TICKETS 


115 


(form  9  M) 


TIME  REP 
Name                                                                D 

ORT 

epartment                                                    Da 
Ci 

Rc 

te  

Occupation  ..    

Dck  No. 

j 

Ol      •    •' 
NO. 

DESCRIPTION 

JUANTITVl      TIME      ||     RATE        ,         AMOUO 

MATERIAL  COST 

!.                         DESCRIPTION 

WEIGHT 

rE 

AMOLS 

I 

T       ] 

P 

!      -' 

O.K. 

Quantity  O.K. 

Amount  O.K. 

Standard  Size  5%  x 


(Form  ON) 


(Form  9  N)    Back 


WEEK   ENDINC 

NO.  275 

NAME 

L-                                                  190 

DAY 

MORNING 

AFTERNOON 

OVERTIME 

TOTAL 

IN 

OUT 

IN 

OUT 

IN 

OUT 

MON. 

*650 

51202 

SJ_30 

^J503 

?6 

TUE. 

D  *7 

?1213 

?1245 

?6oi 

r/i 

WED. 

*645 

^12?5 

^1  01 

^600 

^7  oo 

^10  05 

v& 

THU. 

^655 

a2oi 

iE125fl 

^605 

/o 

FRI. 

£9  30 

£l2oo 

£12.58 

£^io 

r& 

SAT. 

2640 

^1045 

^1259 

^559 

i 

SUN. 

TOTAL  1 
RATE,e 

•|ME  ^-J-  HRS> 
/  o  o~~o 

ft     /"-7    /<y 

TOTAL  WAGES  FOR  WEEK_$Lc/L^r^  

THIS  SIDE  OUT 


NO.   275 

NAME 


Standard  Size  3^  x 


Standard  Sift  3* 


116 


FACTORY    ORGANIZATION   AND    COSTS 


(  Form  9  O) 


ORDE 
DAT 
EMPI 
ART 
STYL 
No  c 
OPEF 

R  No.                                               -- 

OYEE  f> 
CLE 

lo. 

E 

)F  PlEC 
ATION 

ES 

DAY 

ON 

OFF 

ON 

OFF 

ON 

OFF 

MON. 

TUE. 

WED. 

THU. 

FRI. 

SAT. 

SUN. 

TOT/i 
RATE 
AMOl 

L  HO 

JRS                        WIN. 

JNT 

DATE 

NAME 

ORDER  NO. 

DRAWING  NO.                                                                       PAT   NO 

QUANTITY 

ARTICLE 

OPERA 

TION 

DAY 

IN 

OUT 

IN 

OUT 

IN 

OUT 

WON. 

' 

TUE. 

WED. 

THU. 

FRI. 

SAT. 

SUN, 

MOM. 

TUE. 

WED. 

THU. 

FRI. 

SAT. 

SUN. 

STAND.  TIME 

ACTUAL  TIME 

HOURS  .. 

.       RA 

BONUS 
TE_. 

Standard  Size  (3%  x  7) 


(Form 


THIS  SIDE  OUT 

No. 

NAME 

Z 

CD 

H 

30 

C 

0 

H 

O 

~z. 

CO 

btandind  Size  (S>«.  x  7) 


TIME    TICKETS 


117 


OPERATOR  ND. 

PIECE  No. 

ORDER 

NO. 

MAKE 

DATE 
FINISHED 

DESCRIFT.JN 
OF  JOB 

DAY 

ON 

OFF 

HRS. 

RATE 

DDLS. 

CTS. 

WEP. 



THU. 

FRI. 

SAT. 
SUN. 

MON.  , 

TUT. 

ENTER  ON  COST  CARD 

COUNTED 

AND  APPROVED 

BY  INCPECTOR 

J 

2 

3     4 

5 

6 

i 

B 

9    0 

THOUSAND 

HUNDRED 

TEN 

UNIT 

F.  ••    OH 


Standard  Size  4J£  i  6 


(Form  9S) 


MACHINE  fs 

Q. 

7  ~° 

joe.  NO 

WORK 

'    ' 

— 

••• 

8-E 

9—10 

"  -11 

L 

10 

i"  _ 

11- 

12^19 

I—  •  —  •  



i-:22 

2 

— 

q      -31 

4- 

TOTAL 

f     -39 

6~ 

I 

i 

Standard  Size  i. 
(Form  9  T) 


NAME                                              No.                                   DATE 

| 

1 
I 

d 
o 

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FACTODY  EXPENSE                                                      DITE 

1  * 

i    o 

O 

NO. 
PIECES 

i| 

O  w 

ORDER 

No. 

° 

£     X 

3  K 

CLOCK 

RECORD 

DESCRIPTION  OF  WORK. 

co 

CO 
ID 

co 

STARTEt 

03 

TOTAL 

CO 

CD 

RATE 

CO 

COST 

CD 

CO 

FOREMAN 

- 

05 

"CD                 ' 

Standard  Size  (3  x  5) 
(Form  9  U) 

.»  : 
•      i 

co 

CD 

CO 
O 

y 

a 

u 

WAITING  Tint                                                             DATE 

U5 

CD 

CO 

CD 

09 

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co 

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RATE 

TOTAL  COST 

TOTAL  TIME 

COST 

FOREMAN 

i 
stutni-irj  sii<-  :;  \  j 

Standard  Size  i%  x  9 


118 


FACTOKY    ORGANIZATION    AND    COSTS 


(Form  9  V) 


(Form  9  TV) 


o: 
g 

UJ 

EMPLOYEE'S  NO  

MACHINE  No.                                     . 

PI-IB 

PRCM.  AL'W'D 
NAME 

PART 

P  u/      niTt 

AMT    FiNisHFn 

OPERATION                  .     

STOPPED 

FINISHED 

STARTED 

STARTED 

QUANTITY  STARTED 

TOTAL 

ARTICLE                                                                           TOTAI  TIMF 

RATE 

LA30R 
COST 

FOREMAN 

F    n    Nn.                                             DBA*  Nn. 

Standard  Size  3x5 


Standard  Size  2%  i  4% 


(Form  9  X) 


Ov    -J-   /     ^                              /if     i     O 
\  »   '    *   '  /  I  ^^                                                  »        1        1                                                                   \/l  I 

TIME  EMPLOYED                                    COMMENCED 

Date 

Job  No. 

MACHINE  SHOP 

Workman  No 

Boring 

Drilling 

Grinding 

Planing 

Time  Allowed 
Tapping 

Chipping 

•  Facing 

Milling 

Roughinj 

Premium  Credit 
Thread  ng 

Cutting  Off 

Filing 

Mounting 

Shaping 

Foreman 
Turning 

Quantitv_ 

Total  Time  

Rate  .                   Cost  

DAY  WORK 

REPAIR  WORK 

JOB  No. 

MACHINE  No. 

LOT  No. 

MAN  No. 

MAN  No. 

TIME  EMPLOYED                     COMMENCED 

FOREMAN 

TIME  EMPLOYED                  COMMENCED 

FOREMAN 

NAME 

NAME  

OPERATION  

COST  .. 

Standard  Size  3x5 


Standard  Size  3x5 


TIME    TICKETS 


119 


—                                                                              (Form9AA) 

Time  Employed 

Commenced 

Date 

GOLD 

SILVER 

Name 

Job 

Cost  of  Time 

Job  turned  in 

Standard  Size  3x5 

(Form9  AB) 


TIME  TICKET 


Name 


SALES  ORDER 

DEPARTMENT  NO. 


Date 


DESCRIPTION 


TIME        RATE        AMOUNT 


Standard  Size  5  x  t,y, 


THE  subject  of  time  keeping  has  not  only  attracted  the  attention  of  the  manu 
facturers,  but  its  importance  has  to-day  been  so  fully  realized  that  many  devices 
along  mechanical  lines  have  been  invented  to  facilitate  the  work.  These  devices, 
too  numerous  to  be  mentioned  in  this  chapter,  are,  however,  so  important  as  to 
deserve  a  full  description  set  forth  in  a  chapter  dealing  with  this  subject  only. 
It  will  be  sufficient  to  say  that  time  keeping  may  be  obtained  by  two  methods: 
first,  by  mechanical  devices  known  as  time  clocks  and  time  stamps,  which,  of 
course,  are  the  most  accurate;  second,  by  having  the  time  reported  by  an  em 
ployee,  or  a  time  clerk  in  time  books,  time  sheets,  or  other  records.  These  Time 
Reports,  whether  made  out  on  a  time  clock  or  by  hand,  may  be  either  in  the  form 
of  a  weekly  or  a  daily  report.  A  separate  report  may,  if  desired,  be  made  out  for 
each  job  or  order,  whether  an  hour  or  several  days  is  consumed  for  the  comple 
tion  of  the  work.  The  Time  Report  may  be  based  on  piece  work,  showing  only 
quantity,  and  not  time,  the  purpose  being  to  show  the  production  during  a  specific 
time  for  pay  roll  purposes.  In  this  case,  too,  the  report  may  be  weekly  or  daily. 
Where  a  time  clerk  is  employed  because  the  employees  are  too  illiterate  to  fill  out 
their  own  reports,  or  for  any  other  reason,  a  bound  book  or  loose  sheets  in  daily 


120  FACTORY    ORGANIZATION   AND    COSTS 

or  weekly  form  may  be  used.  Furthermore,  where  time  stamps  or  time  clocks 
are  in  use,  and  a  time  clerk  is  employed  whose  duty  it  is  to  give  out  work  as  well 
as  to  keep  the  time,  cards  may  be  used  to  good  advantage;  and  in  such  cases  it 
will  be  found  advantageous  to  use  a  separate  card  for  each  piece  of  work  upon 
which  each  employee  is  engaged. 

The  nature  of  the  information  desired  will  necessarily  affect  the  design  of  the 
form,  whether  a  clock  system  or  merely  the  usual  method  of  writing  in  the  infor 
mation  is  used.  If  the  intention  is  to  record  the  time  for  pay  roll  purposes  only, 
a  clock  system  showing  either  one  or  two  weeks  on  a  card,  according  to  pay 
periods — providing  it  is  all  paid  at  a  day  rate — is  unquestionably  the  best;  but 
this  does  not  mean  that  a  time  clock  system  is  not  advantageous  under  other 
conditions. 

When  it  is  desired  to  use  Time  Reports  in  connection  with  cost  keeping,  there 
are  two  principles  to  be  considered  in  designing  the  forms.  A  separate  report  or 
Time  Ticket  may  be  used  for  each  order,  article,  or  process;  or  the  same  ticket, 
showing  all  orders,  articles,  or  processes  engaged  on  during  the  day,  may  be  used. 
A  further  division  or  distinction  may  be  made  as  to  the  length  of  time  the  Time 
Ticket  is  to  be  used — that  is,  whether  for  a  day  or  for  a  week.  These  are  the 
principal  things  to  be  considered  in  designing  a  form  for  this  purpose;  any  other 
detail  as  to  the  information,  being  peculiar  to  the  business,  is  necessarily  of  sec 
ondary  importance.  Where  an  employee  is  engaged  for  several  hours  on  the 
same  job,  or  where  a  time  stamp  is  used  and  a  time  clerk  or  foreman  gives  out 
the  work,  it  will  be  best  to  use  a  separate  report  for  each  order,  article,  or  process. 
On  the  other  hand,  where  these  conditions  do  not  exist,  and  the  employee  works 
on  a  number  of  articles,  orders,  or  processes  during  the  day,  and  where  no  time 
clerk  or  foreman  gives  out  the  work,  it  will  be  best  to  use  one  Time  Ticket  for  each 
employee  for  the  day. 

Where  the  time  system  is  a  part  of  the  cost  system,  and  the  time  is  not  sum 
marized  or  recapitulated  on  another  sheet,  the  Time  Tickets  should  be  provided 
with  columns  showing  the  amount  of  labor  cost  applying  to  each  order,  number, 
article,  or  process;  but  where  the  time  is  summarized,  either  for  piece  work  or 
day  work,  these  columns  in  certain  cases  need  not  appear.  That  is  to  say, 
the  Time  Reports  should  be  summarized  and  the  wages  calculated  on  a  separate 
sheet,  no  matter  what  other  summary  or  recapitulation  showing  labor  distribu 
tion  is  made. 

In  the  event  of  piece  work  being  the  basis  of  pay,  and  no  premium  system 
being  involved,  a  report  may  be  made  out  showing  quantities  only  and  provided 
with  columns  for  the  rate  and  amount  of  pay;  but  these  entries  should  be  ap 
proved  by  some  person  responsible  for  quality,  quantity,  and  price.  Nevertheless, 


TIME    TICKETS  121 

experience  shows  that  for  effect,  if  for  no  other  reason,  the  time  should  appear, 
although  the  basis  of  pay  may  be  quantity.  Furthermore,  where  the  time  is 
regularly  kept  it  forms  a  basis  for  inaugurating  premium  systems  or  for  revising 
piece-work  rates,  which  in  many  cases  are  based  on  what  employees  accomplished 
on  a  day  rate,  and  not  on  what  they  could  do,  or  are  doing,  on  a  piece-work  basis. 
In  addition  to  this  it  is  a  satisfaction  to  know  that  the  employees  are  working 
full  time  and  at  a  uniform  speed  throughout  the  day  and  week,  and  that  the  rate 
of  wages  is  not  excessive  for  the  time  actually  consumed.  Better  attendance  is 
thus  obtained,  and  the  organization  strengthened  by  this  method. 

Inasmuch  as  any  system  of  time  keeping  relates  to  cost  keeping  and  is  an 
important  part  thereof,  the  form  to  be  used  depends  upon  the  kind  of  cost 
system  in  operation,  which  must  be  based  on  one  of  two  distinct  principles.  The 
first  principle  provides  for  charging  the  productive  labor  against  the  order  or 
product  manufacture.  The  second  principle  provides  for  charging  the  labor 
against  a  machine,  or  process,  and  for  ascertaining  the  cost  per  hour  or  per  unit 
of  operating  the  particular  machine  or  process,  which  machine  or  process  rate  is 
then  applied  to  the  order  or  product.  The  basis  of  a  system  of  this  kind  may  be 
either  time  or  quantity — that  is,  the  rate  can  be  calculated  according  to  the  num 
ber  of  hours  that  the  machine  is  in  operation  or  to  the  number  of  units  produced. 

Consequently,  in  using  a  Time  Report  it  should  be  definitely  settled  which  prin 
ciple  is  involved  in  the  proposed  cost  system.  If  the  productive  labor  method  is 
decided  upon  and  costs  for  each  order  are  to  be  obtained,  the  Time  Report  should 
be  so  ruled  as  to  indicate  the  time  chargeable  to  each  order.  If  the  costs  for 
each  order  are  not  to  be  obtained,  the  Time  Report  should  provide  columns  for  the 
article  or  product  chargeable.  Where  the  principle  involves  machine  or  process 
costs  in  connection  with  a  production  order,  the  order  number  and  the  process 
or  machine  chargeable  should  be  shown;  and  where  no  order  number  is  used  the 
form  should  be  provided  with  a  column  showing  the  name  of  the  article  as  well 
as  the  machine  number  or  process  chargeable. 

The  arrangement  of  the  columns  in  detail  will  also  depend  upon  the  wage 
system  in  use.  For  instance,  if  the  employees  are  engaged  partly  on  day  work 
and  partly  on  piece-work,  the  forms  should  be  so  ruled  as  to  provide  for  both 
classes  of  work;  and  where  a  premium  or  differential  system  is  installed  the  form 
should  be  provided  with  columns  indicating  the  data  relative  to  the  system  in 
use.  Where  such  systems  are  in  operation,  a  time  clock  or  time  stamp  will  be 
found  of  great  value.  It  will  give  more  accurate  results  at  less  cost  to  the  em 
ployee  and  to  the  employer  than  can  be  obtained  in  any  other  manner,  and  will, 
moreover,  prevent  disputes  and  dissatisfaction  as  to  the  accuracy  of  the  amount 
of  the  premium  or  bonus. 


Fourteen  Forms,  showing  Nature  of  Pay  Rolls — Distribution  of  Labor — Relation  to  Distribution 

of  Overhead  Charges  and  Cost  Records. 


(Form  10  A) 


PAY  ROLL  SUMMARY 

Name                                                                        -  Two  weeks  ending.. 

No. 

19.  

DATE                         TOTAL 

DIRECT 

IMDJRECT 

SUPERV;SION 

AND  POWER 

MAINTENANCE 

;•:•,;. 

for  two 

wef 

;ks  endi 

i? 

19^ 

'•    • 

Standard  Size  8  x 


(Form  10  B) 


PAY  ROLL                                           Cloc 
Name                                                                                                                                              Rate 

k  No. 

DATE 

ORDER  NO. 

ARTICLE 

OPERATION 

MADE 

DEFECTIVE 

GOOD 

TIME 

RATE 

AMOUNT 

r     '     i 



• 

Standard  Size  8 


PAY   ROLLS   AKD   DISTRIBUTION    SHEETS 


123 


PAY  ROLL 

Clock  N 

Name  Month  ending 

0. 

DAY 

NO. 

\ 

V  -.     -1 
PIECES 

ADE 

WEIGHT     1          TOTAL          jl     NO.  OF 
EAI  H                 WEIGHT         1]     PIECES 

A!  1    IHT 
EACH 

TOTAL        II    NO.  Of 
WEIGHT             PIECES 

GOOD 

All    ,  M  T 
:   A!    H 

TIME 

TOTAL 
WEIGHT 

HOURS 

RATE 

AMOUNT 

: 

Standard  Sizc.8>i  x  11 


(Form  10  D) 


Machine  No__- 
Name..     _.   .. 

TIME  RECORD 

n 

epartment 
....Clock  No  

TIME  RECORD 

Wages 
ndirect 

D  .  Total 
Rate 

DATE 

ORDER 
NO. 

sLCTiuN    NO. 
OR  ARTICLE 

M. 

T. 

W. 

T. 

F. 

S. 

M. 

T. 

W. 

T. 

F, 

S. 

TOTAL 

RATE 

AMOUNT 

Standard  Size  13  x  11 


124 


FACTORY   ORGANIZATION   AND    COSTS 


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PAY    KOLLS    AND    DISTRIBUTION    SHEETS  125 


(Form  10  F ) 


PAY  ROLL 

For  two  weeks  ending             __    __               _ld 

DEPARTMENT 

AMOUNT  OF  PAY 

DISTRIBUTION 

NO. 

ROOM 

CLOCK 

NO. 

EARNINGS 

DEDUCTIONS 

AMOUNT 
PAYABLE 

HON. 

TUES. 

WED. 

THUR. 

FRI. 

SAT. 

MOS. 

TUES. 

WED. 

THUR. 

FRI. 

SAT. 

APR 

oved:                                      Correct: 

Standard  Size  14  x  15\ 


(Form  10  G) 


FACTORY  PAY  ROLL                                     For. 

Week  ending 

-  19... 

EMPLOYEE 

D 

STRIBUTION 

DEPT. 

CLOCK  NO. 

NAME 

RATE 

TIME 

AMOUNT 

UPERV   ;  -  s 

POWER 

MAINTENANCE 

Standard  Size  11  z 


126 


FACTOKY   ORGANIZATION   AND    COSTS 


DC 

o 

Q_ 
UJ 

DC 


O 

DC 


o 


PAY   ROLLS    AND    DISTRIBUTION    SHEETS 


127 


CO 

CO 


128 


FAOTOKY    OKGAMZATION    AAD    COSTb 


(Form  10  J) 


ANALYSIS  OF  PAY  ROLL 

Department                                                                            Week  ending 

WAGES 

DISTRIBUTION 

NAME 

CLOCK 

Mi. 

AMOUNT 

tj      PAY 

RATE 

TIME 

M 

T 

W 

T 

F 

S 

CLASSIFICATION 
NO.    1 

NO.  2 

NO.   3 

NO.   4 

NO.   5 

NO.    ' 

:    INDIRECT 

Standard  Siie  !:>  x  16 


130 


FACTORY   ORGANIZATION   AND    COSTS 


(Form  10  L) 


ANALYSIS  OF  PAY  ROLL 
Oneration            Month  of  -  2ft  

DATE 

CLOCK  NO.                     CLOCK  NO.                  CLOCK  NO. 

CLOCK  NO.        |          CLOCK  NO. 

TO! 

HOURS 

MINUTES     HOURS 

MINUTES'    HOURS 

MINUTES 

HOURS 

MINUTES     HOURS 

MINUTES 

HOURS 

MINUTES 

i 

TOTAL 

RATE 

AMOUNT 

Standard  Size  8x8 

PAY  ROLL 

NO. 

NAME 

AMOUNT 

OPERATING               OPERATING 
DEPARTMENT           DEPARTMENT 
NO.  1                            NO.  2 

OPERATING 
DEPARTMENT 
NO.  3 

INDIRECT  LABOR 

SUPERVISION         OFFICE  SALARY 

Standard  Size  8  x  10}$ 
(Form  10  X) 

PAY  ROLL 

Operating  Department.                               No                                                    For  the                     ending           190 

NO. 

NAME 

AMOUNT 

DEPT.A 

DEPT.B 

DEPT.C 

Standard  Size  8X  x  10>i 


PAY   ROLLS    AND    DISTRIBUTION    SHEETS  131 

THE  nature  of  the  Time  Reports,  and  the  basis  of  the  pay  system,  will  naturally 
regulate  the  character  of  the  form  best  suited  to  compile  the  information  fur 
nished  by  the  Time  Reports.  These  forms,  like  the  Time  Reports,  can  be  divided 
into  two  principal  classes,  one  showing  the  time  or  production  of  each  employee  on 
a  separate  sheet,  thus  constituting  an  individual  time  record,  the  other  division 
listing  all  of  the  employees  collectively  on  one  sheet.  The  method  first  men 
tioned  would  apply  particularly  to  piece  work,  or  to  work  in  which  it  is  necessary 
to  record  or  summarize  the  order  numbers  or  articles  to  be  charged  with  the 
employee's  time  ;  and  where  it  is  desired  to  distribute  the  overhead  charges  over 
the  employee's  productive  time,  instead  of  later  charging  the  expense  against  the 
order.  To  further  explain  this,  the  pay  rates  in  any  plant  can  be  summarized — 
that  is,  the  number  of  rates  of  pay  can  be  ascertained  and  the  expense  added  to 
each  rate,  thus  giving  the  new  rate  including  the  expenses.  This  new  rate  would 
then  be  charged  to  the  order  numbers  or  articles  according  to  the  employees  who 
came  under  these  rates.  For  a  still  more  complete  explanation  of  this  matter 
the  reader  is  referred  to  Chapter  IV,  on  the  "Distribution  of  Indirect  Expenses." 
In  the  other  pay  roll  method,  all  of  the  employees'  names  appear  on  one  or  more 
sheets,  and  this  may  be  designed  to  show  the  daily  record  of  time  or  the  total  for 
the  week  or  pay  roll  period.  A  form  similar  to  this  would  necessarily  have  to  be 
used  in  connection  with  making  up  the  pay  roll  according  to  the  other  method. 

The  extent  to  which  the  form  is  used  for  distribution  purposes  will  be  deter 
mined  by  both  the  cost  system  and  time  system.  Ordinarily,  where  a  cost  system 
is  used,  the  employee's  time  is  distributed  according  to  direct  and  indirect  labor, 
but  may  be  further  analyzed  according  to  department  or  process,  or  both.  It  is 
practical,  in  some  cases,  to  use  a  separate  form  for  purposes  of  analysis  and  dis 
tribution.  In  such  instances  a  separate  form  may  be  used  for  each  operation  or 
machine,  the  employee's  clock  number  or  name  entered  at  the  top  of  the  column, 
and  the  number  of  hours  recorded  therein  daily;  separate  columns,  of  course, 
being  provided  for  a  number  of  employees  on  each  sheet.  At  the  end  of  the  week 
the  rate  should  be  entered  and  the  labor  cost  figured.  The  result,  where  a  ma 
chine  or  process  cost  system  is  in  use,  would  be  charged  in  the  cost  records  against 
the  operation  or  the  machine. 

Several  designs  for  different  purposes  and  conditions  are  presented,  to  show 
how  forms  of  this  description  should  be  ruled  to  obtain  the  results  under  each 
particular  condition,  rather  than  according  to  any  one  class  of  business. 


CHAPTER  XV 

PRODUCTION   REPORT 

Fourteen    Forms,    representing    Different    Conditions — Value — Use   in   Connection   with    Other 

Records  and  Costs — Use  as  a  Cost  Record. 


(Form  11  A) 


PRODUCTION  REPORT                                  N 
Department                      Date  

3. 

19... 

PRODUCTION 

QUANTITY 

ORDER  NO.     |                    ARTICLE 

OPERATION 

MADE 

DEFECTIVE 

GOOD 

i  

— 

'  — 

1 

Received  by                                                          Correct: 

Standard. Size  SJi.x  11 


(Form  11  B) 


PRODUCTION  REPORT 

______               __           _      Department  Room 

No. 

..     _.  Date.  .                              .     _ 

ARTICLE 

PRODUCTION 

DIRECT  LABOR 

ORDER  NO. 

KIND 

OPERATION 

MADE 

DEFECTIVE 

GOOD 

TIME 

RATE 

AMOUNT 



__—  ^ 

Receiv 

sd  by:                                               Correct' 

Standard  Size  SJi  x  11 


133 


(Form  11  C) 


PRODUCTION  REPORT 

No 

Date 

PRODUCTION 

COST 

ARTICLE 

.       I'''-, 

RATE 

AMOUNT 

DESCRIPTION 

QUANTrTY 

RATE 

AMOUNT 

Material: 

Approved:                                                                             Correct: 

Standard  Sue,  8>i 


134 


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QUANTITY 

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PRODUCTION    REPORT 


135 


(Kurm  U  FT) 


REPORT  OF  PRODUCTION 


Department 


ORDER  NO  

ORDER  NO  .. 

ORDER  NO.  

ORDER  NO  

ORDE 

R  NO.  

ORDE 

'•    . 

ORDER  NO.-  

ORDER  NO  

ORDER  NO. 

MOURJ 

DATE 

CLOCK 
NO  

HOUR9 

NO  

NO.  .. 

NO..    . 

NO. 

1  

_ 



Approved 

Correct 

Slnndard  Size  8X  *  11 


(Form  11  F) 


SUMMARY  OF  PRODUCTIONS  &  COSTS 

...Operation                                                                                                                   Weekending 

ARTICLE 

PRODUCTION                                                                                                                 COST 

M 

T 

A 

T 

F 

S 

OPERATIONS                      MATEHIAL 

LABOR 

INDIRECT 

TOTAL 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

% 

AMOUNT 

RATE 

AMOUN 

• 

Stuiidurd.Size  7>£  x.12 


Operation. 


REPORT  OF  PRODUCTION  AND  COSTS 
Department 

For  the  Week  ending. 


No. 
1'J- 


PRODUC 
ARTICLE 

TION 

QUANTITY 

RATE 
• 

ST 

AMOUN 

DISTRIBUTION 

HATER  AL                     PBOCES' 
"  Al-          1    MACH  NE 

OR 
-OSTS 

M. 

~^T~ 

w. 

TIME 
ri    I    r.         si    \    TOTAL 

Appro 

ved:,-. 

=LLL 

ILL 

c 

1    r  r  e  c  1 

Standard  Size  10  x  12 


136 


FACTORY    ORGANIZATION   AND    COSTS 


E 

OT 

_, 

i 

O 

o 

h- 

Q 

g 

a 

< 

HOURS 

Q 
CC 

Z 

1- 

1- 
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a. 

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PRODUCTION 

Correct: 

rv- 

0  i 

V 

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O 

a. 

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UJ 

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Ld 

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LLl 

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138 


FACTORY    ORGANIZATION    AND    COSTS 


PRODUCTION   REPORT          NQ 

CU 

Time  of  Lighting 

POLA                         Date 

1'J 

Blast  put  on 

Bottom  dropped 

QUANTITY        PRICE  I        AM 

)UNT      i                           METALS  CHARGED  IN  CUPOLA 

PIG 

Pig 

Scrap 

TOTAL 

1     1      1  |  j  1  i  i  j!  Result  of  Melt 

|     ||        i                   Defective 

|  |  |  !  ji      Plate 

•      Gates 

SCRAP 

!      i     li  !  I''  I                 P[S  Bed 

Plate 

1      1      IN             Waste 

Gates 

Pig  Bed 

1  1  1  1  i               ii 

Oyster  Shells 

1       GOOD  CASTINGS  MADE 

1        iCost  of  Melt 

i      Pig 

1 

1  Ml      Scrap 

TOTAL  SCRAP 

Fuel 

FUEL 

I      Sundries 

Coke 

LLJJJI      Labor 

Coal 

I'll       Indirect 

Wood 

1    1    ||                             TOTAL  COST 

Deductions 

TOTAL  FUEL 

Defective 

SUNDRIES 

i        II      Plate 

I     I      Gates                               ' 

Pig   Bed 

1      1  1  1  1 

COST  OF  GOOD 
i    1    1   !   11             CASTINGS  MADE 

i        i 

TOTAL 

,     Cost  per  Ib.  of  Castings 

LABOR 

Percentage  Defective 

11            Scrap 

Waste 

TOTAL  LABOR 

Standard  Size  8>i  x  12 


139 


(Form  11  IT) 


PRODUCTION  REPORT 

BRASS  FOUNDRY 

N 
D; 

3. 

tte 

METAL 

QUANTITY 

RATE     AMOUNT 

LABOR 

TIME 

RATE 

AMOUNT 



SUNDRIES 

FUEL 

L     HI 

COST  OF  MELT 

RESULT  OF  MELT 

Metal,       $   .. 

Good  Cast 
Defective 

ngs,  Quantity               Rate            Amount 

. 

Labor, 

,, 

Fuel 

Scrap 
Waste 

ii                       ii 

Sundries,       

ii                        ii 

,, 

Total,     $ 

Correct: 

Approved: 

_   .-     Cost  Clerk 

—  Foreman 

Standard  Size  8H  x  12 

140 


FACTORY    ORGANIZATION    AND    COSTS 


or 
O 

o. 

UJ 

Bz 
=  2 

IS 

o 
o 

cc 

Q. 


boot- 


PRODUCTION    REPORT 


141 


(Form  11  M) 


PRODUCTION  REPORT 

-Department Operation, 


For  month  of- 


1DTI/-,    C 

1 

PRODUCTION 

j                       ' 

COST 

=4 

0<~>rrert 

Approved  

Standard  Size  9  *  13,'-i 


142 


FACTORY    ORGANIZATION   AND    COSTS 


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5 

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.:• 
_ 

AMOU 

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NAME  OF  MOULDER 

PRODUCTION    REPORT  143 

THE  value  of  this  form  is  that  it  brings  before  the  management  the  daily  or 
weekly  output  of  the  plant.  Separate  forms  may  be  used  for  each  department, 
or  the  finished  product  only  may  be  reported,  according  to  the  purpose  for  which 
the  information  is  obtained. 

The  reports  may  be  used  for  the  purpose  of  posting  the  stock  records  or  cost 
records  according  to  the  design.  In  the  case  last  mentioned  the  cost  may  be 
calculated  on  either  the  productive  labor  method  or  the  process  cost  method,  and 
the  basis  in  either  instance  may  be  time  or  quantity,  or  both.  In  the  forms  pre 
sented,  columns  are  provided  indicating  just  how  each  form  may  be  designed. 
As  an  illustration,  if  the  direct  labor  method  is  in  use,  the  amount  of  labor  charge 
able  to  a  particular  article  or  order  should  be  entered  in  the  proper  column  and 
the  correct  percentage  or  indirect  expense  added,  together  with  the  material  used 
and  the  total  cost  of  the  order  or  article  shown.  If  the  costs  are  to  be  ascertained 
by  the  machine  or  process  cost  method,  forms  should  be  used  showing  the  produc 
tion  and  the  time  chargeable  to  the  product.  If  quantity  is  the  basis  of  cost,  the 
rate  per  hour  or  per  unit  should  be  entered,  and  the  cost  extended  for  the  total 
production  of  each  particular  article,  to  which  the  material  cost  should  then  be 
added  and  the  total  cost  ascertained.  In  such  a  case  a  separate  sheet  may  be 
used  for  each  operation  and  the  cost  figured  separately,  to  be  afterwards  sum 
marized  according  to  article  and  by  operation,  or  a  column  may  be  added  show 
ing  the  cost  of  the  previous  operation,  thus  making  the  last  sheet  for  each  opera 
tion  show  the  final  or  complete  cost.  A  separate  Production  Report  may  be  made 
out  for  each  class  of  product,  and  all  of  the  operations,  together  with  the  material 
used,  summarized  and  extended  on  the  Production  Report.  In  either  of  the  cases 
mentioned,  where  a  stock  and  cost  system  is  in  use,  the  production  should  be 
posted  to  the  finished  stock  records,  and  if  a  separate  form  is  used  a  similar  entry 
should  be  made  in  the  cost  records,  decreasing  the  amount  of  the  articles  pro 
duced,  appearing  in,  and  charged  to  the  Cost  Sheet.  When  no  Cost  Sheet  but  the 
Production  Report  is  used,  it  should  be  so  ruled  as  to  provide  for  carrying  the 
quantities  in  process  of  manufacture,  together  with  the  accumulated  cost,  from 
one  month  to  the  other.  As  the  product  is  finished  it  is  transferred  from  these 
sheets,  which  should  be  decreased  by  that  amount  and  posted  to  the  finished 
stock  records,  if  any  are  kept. 

If  the  form  is  only  to  be  used  for  the  purpose  of  checking  up  piece  work  and 
keeping  a  record  of  stock,  the  more  simple  forms  of  the  ones  presented  should 
be  adopted  and  no  money  columns  need  appear. 


CHAPTER  XVI 

STOCK   EECORDS FINISHED    PRODUCT 

Six  Forms,  Different  in  Design,  showing  Inventory — Orders  Received — Cancelled  Orders — Unfilled 
Orders — Sales — Profits — Where  Information  is  Obtained — The  Effect  of  the  Unit  Profit  System 
on  the  Earnings  of  an  Enterprise. 


(Form  12  A) 


Artie 

STOC 

FINISHEI 
e 

K  CARD 

)  PRODUCT 

Class  Nc 
Maximur 

Minimur 

, 

n__     _______ 

n 

DATE 

PRODUCTION 

SHIPMENTS 

BALANCE 

REPORT  NO. 

QUANTITY 

REPORT  NO. 

QUANTITY 

QUANTITY 

Standard  Size,  1x6 


(Form  12  B) 


Art! 

STOCK  CARD 

FINISHED  PRODUCT 

Classification  No.  
Maximum  
cle                                                                                                        Minimum 

DATE        !                         PRODUCTION 

SHIPMENTS 

BALANCE 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

I 

li 

Standard  Size  -  x  6 


STOCK   RECORDS— FINISHED    PRODUCT 


145 


(Form  «  C) 


Article 


FINISHED  PART  PRODUCT 


D  e  p  art  m  e  nt 


Sheet  No. .. 
Maximum.. 

Minimum  . . 


PRODUCTION 

DELIVERIES  OR   SALES 

BALANCE 

N3. 

*v       •,- 

QUA.STITr 

RATE 

AMOUS' 

I     |    |    F 

— 

- 

u  

Standard  Size  10  x 


(Form  12  D) 


FINISHED  PRODUCT                                      |h,^c° 

Max  mun 
Art  cle                                                                                                                                                                          Minimun 

tion 
i 

| 

No. 

" 

I."."    "    _     _.       --     "| 

DATE 

PRODUCTION-SIZES 

DATE 

o 

3DERS   RECEIVED  SIZES 
1          I          1          1          | 

DATE 

SHI 

PME 

NTS-SIZES 

. 

Standard  Siie  U  x  UK 

Artie 

STOCK-FINISHED  PRODUCT                     classification  N 

Maximum  
Minimum  

g                                                                                                                                                                                                                        Bm  No. 

) 

PRO 

DU 

N 

ORC 

! 

)ERS 

SALE 

S 

•-- 

.  NFILLEC 
ORDERS 

B 

VLANCE 

§ 

-    — 

TT  — 



\=A 



i 

.       '1:1111 

i; 

W    5 


II 


STOCK   RECORDS— FINISHED    PRODUCT  147 

ALL  of  the  remarks  and  explanatory  matter  stated  in  connection  with  the 
stock  records  for  raw  material  necessarily  apply,  in  part,  to  these  records,  as 
both  are  for  the  purpose  of  keeping  track  of  stock  and  regulating  production. 

The  form  to  be  used  depends  upon  the  information  desired;  and  the  records 
may  be  so  ruled  as  to  show  only  the  quantity  of  each  article  on  hand,  or  may 
show,  in  addition,  the  cost,  and  consequently  a  record  of  production  and  ship 
ments.  Columns  may  also  be  provided  to  record  orders  received  and  orders 
cancelled,  as  well  as  the  unfilled  orders  relating  to  each  particular  article;  so  the 
management  may  be  able  to  consider  the  balance  of  stock  on  hand  in  connection 
with  unfilled  orders,  in  issuing  instructions  to  the  factory  relative  to  the  kind  of 
product  to  be  manufactured.  Furthermore,  the  design  may  be  so  ruled  as  to 
show  all  the  information  mentioned  and,  in  addition,  the  gross  profit  on  each 
article,  which  can  be  accomplished  by  posting  the  selling  price  as  well  as  the  cost 
price  when  each  sale  is  made.  This  information  will  be  of  great  value  where  a  num 
ber  of  articles  of  the  same  class  are  manufactured  which  must  be  carried  in  stock 
as  a  complete  line,  although  it  may  be  known  that  little  or  no  profit  is  made  on  cer 
tain  of  the  articles,  the  question  being  whether  sufficient  profit  is  made  on  the  others 
to  justify  carrying  the  entire  line.  Moreover,  it  will  enable  the  management  to 
ascertain  exactly  which  articles  are  being  made  at  a  loss  and  which  are  made  at 
a  profit,  and  places  the  business  on  a  unit  profit  basis  from  a  system  standpoint. 

As  to  the  manner  of  procuring  the  information,  the  following  would  be  the 
course  ordinarily  pursued.  The  production  wrould  be  obtained  either  from  the 
Production  Reports,  the  completed  Production  Orders,  or  the  Cost  Sheet,  if  neither 
of  the  other  forms  is  used;  whereas  the  sales  or  shipments  can  be  taken  from 
the  Sales  Sheet  or  Sales  Book  or  from  a  copy  of  the  Shipping  Order,  or  from  a  sum 
mary  of  either  of  these  forms;  the  orders  received  and  cancelled  can  be  taken 
from  the  original  customer's  orders,  or  from  the  correspondence;  the  unfilled 
orders,  of  course,  represent  the  difference  between  the  total  orders  received  and 
the  total  sales  and  cancelled  orders.  The  balance  of  stock  on  hand  consists  of 
the  difference  between  the  production  and  sales  columns.  The  gross  profit  is 
ascertained  by  deducting  the  cost  of  the  goods  sold  from  the  selling  price.  Where 
stock  records  are  kept  with  finished  parts,  the  same  form  and  methods  should  be 
used  as  in  the  case  of  the  finished  product;  there  being  no  difference  in  the  nature 
of  the  information,  or  the  method  of  handling  it,  except  that  the  deliveries  are 
taken  from  requisitions,  although  there  may  be  some  entries  taken  from  the  Sales 
Sheet  for  parts  sold.  The  stock  balances  should  be  verified  from  time  to  time  by 
taking  an  actual  inventory,  according  to  the  method  explained  under  the  caption 
"Inventory  of  Material,"  describing  methods  of  taking  inventories  and  verifying 
results  with  book  inventories. 


CHAPTER   XVII 

COST   RECORDS 

Twenty-one  Forms  for  Recording  Costs — Use  in  Special  Orders — Contracts — Machine  Costs — 
Conditions  under  Which  they  are  Designed  and  Used — Relation  to  Distribution  of  Indirect 
Expenses — Estimated  Cost  Forms — Power  Cost  and  Distribution. 


(Form  13  A) 


COST  SHEET 
Costof___   .-  -  .   __ 

PRODUCTION 

MATERIAL 

LABOR                    INDIRECT 

DATE 

ARTICLE 

OPERATION 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

RATE 

AMOUNT 

* 

AMOUNT 

j 

- 

— 

1  

Standard  Size  8>£  x  11 


(Form  13  B) 


COST     SHEET                                                   Their  Order  No 
Our  Order  No. 
Date  Wanted  . 
Cost  of                                                                                                                                                                          Date  Finished  . 

i                                          PRODUCTION 

COST 

DISTRIBUTION 

:  --  ;  •• 

ARTICLE 

OPERATION 

QUANTITY 

RATE 

AMOUNT 

MATERIAL 

LABOR       |    INDIRECT    |j 

! 

.  ' 

1 

Standard  Size  »y,  x  11 


149 


(Form  13  O 


Name. 


COST  SHEET 


Order  No 

Date  of  Order 

Date  Completed 


DATE 


DESCRIPTION 


MATER.AL  .    .NDIRECT 

:i         TIN  SHOP  MACHINE  SHOP          WOOD  SHOP          TOTAL  DIRFCT  COST 


Standard  Size  S>$  x  11 


Profit 
Sel'mg  Price 


CForni  13  D) 


Cost  of 


COST  SHEET 


Their  Order  No. 
Our  Order  No. 
Date  Wanted 
Date  Finished 


PRODUCTION                                                                 '                                                                DISTRIBUTION 

:i    L 

ARTICLE 

-^ 

ff            INDIOEC 

-JL 

Standard  Size  8X  x  11 


150 


FACTORY    ORGAN IZATION    AND    COSTS 


(Form  13  E) 


COST  SHEET 

Article..   _   ...    

r,iTE 

LABOR 

MATERIAL 

EXPENSES 

TOTAL  COST 

MONTH 

MY 

OPERATION 

CHECK  MO. 

QUANTITY 

RATE 

AMOUNT 

DESCRIPTION 

Tu'.^r 

QUANTITY 

RATE 

AMOUNT 

AMOUNT 

AMOUNT 

Standard  Size  ll.x.14 

(Form  13  F) 


REPORT  OF  COST  OF  ERECTION                                             °roc 

From                                                                                       190                                  To 

er  No. 



__.  190      . 

Name  of  Building                                                                                                                                       _                       _                  

City                                                                                              State                                                                                                

Date  Commenced                                                                     Will  be  Completed                                                    Date  Completed. 

CLASS  OF  WORK 

DISTRIBUTION 

OPERATION 

AMOUNT 

MATERIAL 

LABOR 

INCIDENTALS 

INDIRECT 

Sent  in  by.                                                Examined  by:                                              Entered  by: 

Standard.Size  8  i 


COST    KECOKDJS 


151 


1 

7 

" 

_  :  

! 

o 

t- 

i 

£ 

T3                    £ 

V                      4) 

•Q.               "5. 

u 

1- 

z 

«z        J 

Q 
O 

< 

<IJ   <IJ                 OJ 
QO            Q 

- 

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h- 

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i" 

"c 

0> 

E 

^ 

1—  S"      "° 

HI    Q           5 

UJ 

I 
h- 

z 

:: 

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^**             oo   c: 

CO 

VW                   CJ 

0 

H 

• 
/ 

1                                D 

5 

Z 
LJ 
cc 

S 

o        > 

0 

a: 
0 

I 

i 

I 

K- 

cr 
0 
LL 

i 

" 

H 

1 

Name  of  Building  
City  _ 
Date  Commenced 

CC 
0 

u_ 
0 
CO 

_l 
O 

OPERATION 

_  _  ._  _  _  

TOTAL 

152 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  13  H) 


Cost  of 

For    __ 

DEPA 

RTMENT  COSTS                                        Orders: 
Our  No 
Their  N 

0.— 

DATE 

OPERATION 

SECTIONS 

_ 

Standard  Size  10x11 


(Form  13  I) 


COST  SHEET                                    °^  ur  No. 

Thei 
Cost  of                                                                                               --                                                                                                Tonn 

No._    . 

ag( 

,  <• 
ile1 
1 

For 

Date  Wan 
Date  Com 
Date  Bille 

ad.. 

COMPARATIVE  COSTS                                                                                                       DISTRIBUTION 

SECTIONS 

:    iTIMATEC 
COST 

INCREASE 

DECREASE 

ACTUAL 
COST 

MATERIAL 

LABOR 

INDIRECT 

DEFECTIVE 

WORK 

TRANSPORTA- 

IID-. 

INCIDENTALS 

- 

i|GRAND  TOTAL 

SUMMARY                ESTIMATED            INCREASE 

DECREASE 

ACTUAL          We,  the  undersigned  certify  the  foregoing  has  been  examined  and  found  correct. 

Cost:- 
Factory 

Erecting 

Selling  Price 
1  Gross  Profit 
Percentage 

Correc 
Exam 
Appro 

,t: 

iei 
e< 

(Cost  Clerk) 

(Superintendent) 

(General  Manager) 

Standard  Size  13x11 


COST   RECORDS 


153 


(Form  13  J-l) 


DEPARTMENT 

Cost  of 

Finish 

For 


COST  SHEET 


Address 


ORDERS: 

Our  No 

Their  No. 

Date  Wanted 

Date  Completed. 
Date  Billed    .. 


COMPARATIVE   COSTS                                                                     DISTRIBUTION 

SHIPMENTS 

j    DEPARTMENTS 

ESTIM. 
COST 

NCREASE  DECREASE 

ACTUAL 
[COST< 

MATERIAL    LABOR 

INDIRE 

- 

TRANS- 

PORTAT  ON 

^DEFECTIVE 

DATE 

SHIPPING 
ORDER 

QUANTITY 

PRICE 

AMOUNT 

FACTORY 
COST: 

ERECTING 
COST: 

GRAND  TOTAL 

SUMMARY 

1                                       DESCRIPTION                                                          .      INCREASE  DECREASE 

|    COST 
Factory 
Erecting 

I    SELLING  PRICE 
GROSS  PROFIT 
Percentage 

We,  the  unders  gned,  certify  that  the 
foregoing  has  been  examined  and  found 
correct. 

CORRECT: 

EXAMINED: 

APPROVED: 

Standard  Siie  11  x  17 

154 


FACTORY    ORGANIZATION    ANL>    COSTS 


(Form  13  J-2) 


DEPARTMENT 

ORDERS; 

COST  SHEET                                  ourNo 

Their  N 
Date  W 

Co 
Fin 
Fo 

st  of 

0. 

ish 

anted   .. 

i    i   r                                                                                              Date  Completed 
Address   DateBlled 

|                      COMPARATIVE  COSTS 

1 

2 

3 

A 

5 

6 

DEPARTMENTS 

AMOUNT 

ESTIMATED 
COST 

ACTUAL 
COST 

ESTIMATE: 

(  OST 

ACTUAL 
COST 

ESTIMATED 
COST 

ACTUAL 
COST 

ESTIMATED 
COST 

ACTUAL 
COST 

ESTIMATED 
COST 

ACTUAL 
COST 

ESTIMATE: 

COST 

ACTUAL 
COST 

FACTORY  COST: 
ERECTING  COST: 

GRAND  TOTAL 

COMPARATIVE  COSTS 

MATERIAL 

LABOR 

INDIRECT 

INCIDENTALS 

DEFECTIVE  WORK       : 

NO. 

SECTIONS 

COST 

IB   Ml     M  Wl 

1 

2 
3 
4 

5 
6 

TOTAL 

Standard  Size-  11  x  17 


155 


MACHINE  COST 

Machine  No. 

Department 

DESCRIPTION 

JAN.   !     FEB.       MAR. 

APR. 

MAY 

JUNE 

JULY 

Machine  Costs1. 

J 

Labor 

Supplies 

^_  Power 

Maintenance 

Depreciation  r,< 

Indirect 

Total 

Working  Hours 

Cost  per  Hour 



Machine  Record: 

Set  up 

Idle 

In  use 

Working  Hours 

Lost  Time 

Average  Cost  per 
Hour  to  date 

(Standard  Size  6x6) 


PF 

IOCESS  CARD  REC 

Department-For  the 

ORD 

No... 

M 

achine  No 

Opera 

ion._.  _- 

DISTRIBUTION 

Time 

Begun 

Finished 

Hours 

Idle 

Machine  Costs 

Day  Work 

1  

Piece  Work 

Supplies 

Power 

Floor  Space 

Maintenance 

License 

Depreciation 

Insurance 

Indirect  Expenses 

TOTAL 

'      • 

156 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  13  M) 


PROCESS  COSTS  &  DISTRIBUTION 

For  the  month  of  -  ID.  

ANALYSIS 

COST 

DISTRIBUTION 

HORSE  RUNNING 
DEPT. 
POWER      TIME 

H.  P. 
HOURS 

POWER 
COST 

Rental  Charge 

Machine  No.  1 

A 

Depreciation 

Machine  No.  2 

A 

License 

Machine  No.  3 

A 

Inspection 

Machine  No.  4 

B 

Insurance 

Etc. 

C 

Fuel 

etc. 

Water 

Repairs 

Oil,  Waste,  etc. 

Engineer 

Firemen 

Incidentals 

TOTAL 

Horse-Power  Hours 
Horse-Power  Distributed 
Horse-Power  Developed 
Horse-Power  Loss  and  Transm  ssion 
Cost  per  Horse-Power  Hour 

Standard  Sizt  (i^  x  6)f 


COST   RECORDS 


157 


c/D 

GO 

O 
0 

UJ 


< 

DC 
< 

Q. 

^ 
O 

o 


1  I 


: 


158 


FACTORY    ORGANIZATION    AND    COSTS 


(Form  13  O) 


COST  SHEET                                                             No 

Article                                                                                      _Size_      _         _   _                           .Classificat  on 

COMPARATIVE  COSTS 

JANUARY 

FEBRUARY 

MARCH 

APRIL 

MAY 

JUNE                 AVERAGE 

OPERATION 

LABOR 

i                                         TOTAL 

SUMMARY 

Material 
Labor 
Indirect 

TOTAL 

Factory  Price 
Selling  Price 
Gross  Profit 

il 

Standard  Size  11  x  11 


159 


- 

Oi 

> 

- 

- 

- 

- 

- 

fclfl 

c 

c 

0) 

« 

c 

£ 

° 

o> 

i 

6 

_c 

3 

Q> 

- 

,_ 

0 

- 

U. 

(- 

III 

LLl 

- 

CO 

-- 

t- 

h- 

- 

- 

o 

« 

U) 

+ 

n) 

0 
O 

81803  3AI 

\ 

\ 

1  COV.  v..v 

•  ARTICLE 

160 


FACTORY    ORGANIZATION    AND    COSTS 


LU 
UJ 
I 
CO 

CO 

o 
o 


COST   RECORDS 


161 


CUPOLA  COSTS 

For  the  month  of                                           I'l 

COST  OF   METAL 

cgsr  PER     <{    ||   lunmT    11   4    II   AuraiMT    lhvt*-CQrr||    <    !|   AuniltlT 

—  -1 

E 

= 

E 

I 

= 

\  — 

Standard  Size  »%  X  18 


(Form  13  S) 


Article 


COST  SHEET 


No. 


DATE         DESCRIPTION 

N0.1 

N      j                           N':..                            NO.  4 

NO.  5 

MRS.   MIN.  'QUANTITY 

MRS.  MIN.  QUANTITY 

HRS.    MIN. 

QUANTITY   HRS. 

MIN.  QUANTITY 

MRS. 

• 

QUANTITY 

t 

Total  for 
Process  F 
Process  C 
Material  C 
Tot 
n  Proces' 
Tot 
In  Proces 
Finished 

month 
ate  per  Hour 
ost 
5ott 

al  Cost 
-first  of  month 

>-end  of  month 
Product 

Average  Cost  per  unit 

162 


FACTORY    ORGANIZATION    AND    COSTS 


SCHEDULE  OF  ESTIMATED  COSTS 


MATERIAL  LABOR  INDIRECT  TOTAL 


Standard  Size  6  x 


(Form  13  U ) 


SCHEDULE  OF  ESTIMATED  COSTS 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

NO.   1 

NO.   2 

NO.   3 

NO.   1 

NO.  2 

NO.    3 

.  —  L 

« 

Standard  Size  7  x 


COMPILATION  of  all  the  details  furnished  by  the  forms  previously  explained  rela 
tive  to  cost  rinding  should  be  entered  on  a  form  similar  in  design  to  the  several  forms 
reproduced  in  this  chapter.  Nearly  all  of  these  forms  represent  a  conventional 
type,  and  all  have  been  in  actual  operation  in  several  different  lines  of  manufac 
turing.  These  forms  present  several  designs  for  obtaining  costs  where  the  special 
order  system  is  used  in  connection  with  a  system  based  on  the  productive  labor 
method  or  principle  of  cost  finding.  Other  designs  are  shown  where  no  orders 
are  used,  but  the  cost  of  production  ascertained  according  to  article,  the  same 
sheet  or  record  being  used  continuously  until  filled  up  with  entries.  Designs  are 
also  illustrated  for  a  special  order  system  where  the  work  is  in  the  form  of  large 
contracts,  but  where  the  cost  of  each  section  is  calculated  by  departments  on  the 
productive  labor  principle.  These  costs  are  arranged  in  analytical  form,  indicat 
ing  the  nature  of  the  charges  or  cost,  and  in  parallel  columns  with  the  estimated 
cost,  so  that  the  difference  between  the  estimated  cost  and  actual  cost  is  shown. 

Other  forms  will  be  found  where  the  basis  of  cost  is  the  machine  or  process, 
and  where  the  costs  are  figured  either  according  to  a  special  order  number  or 


COST   RECORDS  163 

according  to  the  name  of  the  product  or  article.  These  forms  are  also  general 
in  character,  but  specific  as  to  the  conditions  under  which  each  should  be  used. 

From  the  foregoing  it  can  be  seen  that  the  first  question,  and  the  most  impor 
tant  of  all  to  be  determined  in  designing  or  installing  a  system,  is  the  basis  of 
cost  finding — that  is,  whether  the  cost  of  each  production  order  or  only  the  cost 
of  all  articles  of  a  similar  description  should  be  obtained.  In  many  instances  a 
factory  order  is  issued  for  goods  that  are  manufactured  continuously,  and  the 
cost  of  this  order  is  ascertained  separately.  This  is  good  policy  in  some  cases, 
as  results  are  obtained  in  this  way  that  could  not  be  accomplished  if  the  cost  of 
the  article  was  figured  separately  from  the  orders  issued.  In  some  instances, 
however,  it  is  neither  possible  nor  practicable  to  figure  costs  according  to  a  par 
ticular  order,  owing  to  the  fact  that  it  is  impossible  to  keep  track  of  any  particular 
order  after  the  product  passes  through  several  operations;  and  in  cases  of  this 
kind  it  is  simpler  to  ascertain  the  cost  by  article  and  disregard  the  order  number 
entirely. 

After  this  has  been  decided,  the  next  question  to  be  considered  is  whether 
the  direct  labor  method  or  the  process  cost  method  shall  be  applied  to  the  cost 
keeping  system.  The  former  method  means  that  the  labor  is  charged  directly 
to  the  order  or  article  to  which  it  belongs,  and  to  this  is  added  the  material  cost 
and  the  pro-rata  share  of  indirect  expenses,  which  gives,  of  course,  the  total  cost 
of  the  order  or  article  shown  in  the  record.  In  designing  the  form  to  carry  out 
this  principle,  the  fact  should  be  kept  in  mind  that  the  labor  cost  may  be  obtained 
as  a  whole  by  department  or  by  operation.  Furthermore,  in  a  system  of  this  kind 
the  question  of  figuring  indirect  expenses  should  be  considered,  as  this,  too,  would 
affect  the  design. 

The  most  accurate  results  from  a  cost-keeping  standpoint  can  be  obtained  by 
calculating  costs  whenever  possible  according  to  the  machine  or  process  cost  sys 
tem,  for  the  reason  that  by  this  system  a  larger  amount  of  the  indirect  expenses 
can  be  definitely  charged  to  a  particular  machine  or  process.  For  instance,  such 
expenses  as  power,  insurance,  depreciation,  maintenance,  machine  supplies,  and 
some  of  the  labor  ordinarily  included  as  non-productive  labor,  can  by  this  method 
be  charged  to  a  machine  or  process,  thereby  reducing  the  amount  of  general  ex 
pense  not  chargeable  to  a  particular  operation  or  process.  Inasmuch  as  the  most 
uncertain  element  in  cost  is  the  basis  or  fairness  of  the  method  of  distributing 
the  overhead  expenses  over  the  production,  it  is  evident  that  any  plan  or  method 
that  will  reduce  the  amount  of  the  expense  to  be  distributed  on  a  more  or  less 
arbitrary  basis  will  naturally  produce  more  accurate  costs.  After  these  charges 
have  been  made  against  the  machine  or  process,  the  operating  hours — by  which 
is  meant  the  number  of  hours  the  machine  is  in  use  during  the  month — are  entered, 


164  FACTORY    ORGANIZATION    AND    COSTS 

and  the  cost  per  hour  ascertained.  This  rate  is  entered  on  the  cost  sheet  and 
used  to  calculate  the  cost  for  each  order  number  or  article.  As  the  number  of 
hours  with  which  the  order  or  article  is  charged  for  each  operation  is  shown  on 
this  record,  it  is  an  easy  matter  to  multiply  the  total  number  of  hours  charged 
for  each  operation  by  the  rate  per  hour  and  extend  the  amount.  To  this  amount 
is  added  the  material  cost,  which  gives  the  complete  cost  of  the  article  or  order. 
The  same  general  plan  can  also  be  applied  where  it  is  not  possible  to  figure  the 
time  on  the  product,  but  to  ascertain  the  tonnage  or  number  of  pounds  or  any 
other  unit  of  measure,  and  make  the  distribution  on  this  basis  instead  of  on  a 
basis  of  time.  The  reader  will  of  course  have  to  decide  which  is  the  best  plan  for 
him  to  adopt. 

The  manner  of  compiling  the  information  on  these  records  relative  to  material 
cost,  labor  cost,  or  production  will  be  governed  according  to  the  nature  of  the 
business  and  the  kind  of  system  installed.  All  information  should  be  obtained 
from  forms  to  be  installed,  and  posting  made  in  a  regular  way  from  these  forms 
to  the  cost  records. 

For  the  information  and  use  of  those  who  do  not  desire  to  inaugurate  an  ac 
curate  system  of  cost  keeping,  several  forms  which  will  be  found  of  use  in  such 
cases  are  illustrated.  These  forms  are  explained  in  the  chapters  relating  to 
"Estimated  Cost  Systems,"  to  which  the  reader  is  referred  regarding  the  proper 
methods  of  operating  and  verifying  results  obtained  from  such  systems. 


CHAPTER  XVIII 

DEFECTIVE   WORK   REPORTS 

Two  Forms,  showing  Use — Value — Disposition  of  Defective  Work. 


(Form  HA) 


DEFECTIVE  WORK  REPORT 
Department                                             For  1'j 

- 

DEFECT 

CAUSE 

-       •- 

QUANTITY 

A  •.• 

Approved:  Correct:    

Standard  Size  8  x  11 


(Form  14  B) 


DEFECTIVE  WORK    REPORT                                               Nc 

Department                                  Week  Ending  _    ...    ..    ... 

i. 

1'J 

ARTICLE 

MACHINE  NO.       I              DEFECT                          DISPOSITION 
OR  PROCESS        ' 

MOM. 

TUE8. 

WED. 

THURS. 

FRI. 

SAT. 

TOTAl 

RATE 

AVCLST 

: 



[ 

1 

II 

Rece  ved  by: 

Correct: 

166  FACTORY    ORGANIZATION   AND    COSTS 

As  the  name  would  suggest,  this  form  is  intended  for  bringing  to  the  atten 
tion  of  the  management  product  that  is  rendered  worthless,  or  partly  so,  in  pro 
cess  of  manufacture. 

Although  the  form  is  simple  it  is  quite  important,  and  will  in  most  cases  result 
in  a  saving  to  any  business  where  it  is  used,  as  the  majority  of  foremen  and  super 
intendents  are  not  particularly  desirous  of  having  frequent  reports  of  this  char 
acter  made  to  the  management. 

From  a  cost-keeping  standpoint,  if  the  product  is  worthless  it  may  be  disposed 
of  in  one  or  two  ways — either  by  charging  it  directly  against  the  order  number 
or  article,  or  by  charging  it  to  a  defective  work  account,  which  account  is  included 
in  the  general  expenses  of  the  business.  But  in  the  event  that  the  material  is 
reclaimed,  it  should  be  taken  into  stock  at  a  reduced  rate,  to  be  agreed  upon,  and 
the  difference  between  the  cost  and  this  reduced  rate  should  be  charged  in  the 
same  manner  as  stated  above — either  to  the  order  number  or  article,  or  to  the 
defective  work  account. 

Whichever  method  is  used,  the  effect,  generally  speaking,  is  the  same.  It  is  a 
loss  that  occurs  to  some  extent  in  almost  every  factory,  and  can  only  be  prevented 
by  the  definite  knowledge  of  knowing  when  it  exists  and  the  reason  therefor.  If 
these  facts  are  known,  some  action,  at  least,  can  be  taken  to  keep  the  amount  to 
a  minimum  even  if  it  cannot  be  eliminated.  The  report  may  be  in  the  form  of  a 
daily  or  weekly  record. 


CHAPTER  XIX 

STATEMENT    OF    FACTORY    EXPENDITURES 

Four  Different  Designs  representing  Factory  Operations — Showing  Plant  as  a  Whole — Depart 
mental  Expenditures  :  Material,  Labor,  and  Indirect — Inventory — Purchases — Material  De 
livered  to  Factory — Departmental  Expenses — Method  of  Distribution  of  Indirect — Classifica 
tion  and  Costs. 


STATEMENT  OF  FACTORY  EXPENDITURES 

Dated   1'J 

DISTRIBUTION                                         FOR  THE   CURRENT  MONTH                              FOR   1 

"HE  CURRENT   FISCAL  YEAR   TO   DATE 

ACCOUNTS                  i!   TOTAL          A              B              C              D              E              A 

B               C               D              E            TOTAL 

C    ect: 

If 

Material 

Labor 

Total 

Indirect: 

I                                                             "         "  i 

Laoor 

ITT 

gupenrlslon 

Supplies 

"                 I 

Light,  Heat  and  Power 

Freight,  Express  and  Ctrtaee  (Outward)}! 

Maintenance 

Incidentals 

Depredation 

General  Operating  Expense 

Total 

Percentage 

Total  Expenditures 

IH"T*-  (beginning  of  period) 

Grand  Total 

Cort  of  gales 

A..     •      -'..-.-. 

iBTenturT  (en.l  t-f  jicriod)                                       |      1 

STORE  ROOM                                                 OPERATING  EXPENSES 

DISTRIBUTION 

OPERATIONS                CMC>NTHT      F*E*RL                  ACCOUNTS               CMONTr7  .  TC^TE             ' 

)EPARTMENTS            CMONTHT    7<      J^^TF    % 

Inrentorj  (beginning  of  period  ) 

;    j      ||         !    'supeHn^denc.                                        (||      1           jj              [TO 

1                 '      i  General  Labor                                                                                         B 

PDKJbases 

rrn  y^  neat  K\  v  ,.er                     .  c 

Insurance                                                                                                D 

Total                                                          Taxes                                                                                                       E 

!'     1  1     1  1  {  ||  i                     Freight,  Express  and  Cartage 

1'            r         -...-•                 ;  •    . 

Factory  Supp  lea 

Salaries  of  Factory  and  OOoe  Clerks     |  | 

il                                                  Fx-torT  Office  Sii].|i  ies 

',             Incidentals 

i                                                                              ,                                           .! 

1 

1  !l                                                             I   I  1     1  *     i   i 

Inrentor;  of  Raw  Material 
(end  of  period)  ||  [ 

TOTAL 

TOTAL 

Approved: 

Correct: 

_  _ 

Standard  Size  11  x  17 


168 


FACTORY    ORGANIZATION   AND    COSTS 


STATEMENT  OF   EXPENDITURES 

Dated  .                                                 10 

ACCOUNTS 

Direct: 

Purchases                                                     : 

Freight.  Express  and  Cartage  (Inward) 

Labor 

Total 

Indirect: 

Light,  Heat   and  Power 

Rent 

Warehouse  Labor 

Insurance 

Printing 

Storage 

Maintenance 

Depreciation  of  Fixtures 

Incidentals 

Total 

!                                 Percentage 

Total  Expenditures 

Inventory  (Beginning  of  Period) 

'                                 Total 

Cost  of  Sales 

Inventory  (End  of  Period) 

I    1              1 

Standard  Si/.i-  'J>< 


STATEMENT  OF  FACTORY  EXPENDITURES 


CURRENT  MONTH                             CURRENT  FISCAL  YEAR 

ACCOUNT 

AMOUNT 

TOTAL 

AMOUNT 

TOTAL 

1  Material 

Direct  Labor 

Indirect  Expense: 

Labor 

Supervision 

Supplies 

Light,  Heat  and  Power    • 

Maintenance 

Insurance 

Taxes 

Telegraph  and  Telephone 
Printing,  Postage  and  Stationery 
Salaries  of  Factory  Clerks 

Incidentals 

Depreciation 

Total  Factory  Expenditures 

Inventory  (Beginning  of  Period) 

Total 
I    Cost  of  goods  sold 

Inventory  (End  of  Period) 

. 

STATEMENT  OP  FACTORY  EXPENDITURES. 
For  the  month  of  -  _  19  

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170  FACTORY    ORGANIZATION   AND    COSTS 

IN  this  form  will  be  found  a  summary  or  analysis  of  all  of  the  transactions 
affecting  the  factory  operations,  and  several  designs  are  shown  where  the  factory 
expenditures  are  classified  or  divided  into  departments — departments,  in  this 
instance,  meaning  operating  departments  in  the  factory.  Other  designs  illustrate 
the  same  kind  of  statement  where  the  factory  is  not  divided  into  departments. 
Both  kinds  of  statements,  however,  show  in  effect  the  direct  labor,  material  pur 
chases,  and  material  used,  as  well  as  the  indirect  expenses  of  the  factory — in  one 
case  according  to  department  and  in  the  other  merely  as  a  whole.  The  state 
ment  also  shows  the  value  of  the  goods  sold  during  the  month  or  period  at  the 
cost  price;  and  the  inventory  at  the  beginning  and  the  end  of  the  period,  of  all 
goods  finished  and  in  process,  as  well  as  the  inventory  of  raw  material  on  hand, 
together  with  the  amount  of  purchases  and  the  amount  of  material  delivered  to 
the  operating  departments  during  the  same  period.  In  several  of  these  forms  the 
general  operating  expenses  of  the  factory — that  is,  the  expenses  that  are  not 
chargeable  to  any  particular  department,  but  to  all  alike — are  shown,  as  well  as 
the  method  of  distributing  this  expense  among  the  departments.  In  this  manner 
the  total  amount  of  expense  in  each  department,  including  the  pro-rata  share  of 
general  expenses,  is  ascertained.  When  this  is  done  the  total  indirect  expense 
should  be  figured  in  each  department  and  the  percentage  or  rate  ascertained, 
which  percentage  or  rate  should  be  used  in  calculating  costs. 

The  reader's  attention  is  called  to  the  classification  or  names  of  the  accounts. 
This  is  the  same  for  all  departments,  and  although  different  names  could  be  used 
in  each  department  for  the  same  kind  of  expense,  this  would  only  make  the  keep 
ing  of  the  accounts  more  complicated  and  would  prevent  the  preparation  of  the 
statement  in  a  condensed  form.  The  classification  of  accounts  shown  is  of  a 
standard  nature,  and  can  be  used  in  any  manufacturing  business.  Expenditures 
may  be  classified  in  one  of  the  several  accounts  appearing  in  this  statement.  In 
addition  to  this,  if  each  account  is  given  a  number  and  each  department  repre 
sented  by  a  letter,  a  considerable  amount  of  writing  will  be  avoided  in  account 
keeping. 

As  the  reader  will  observe,  this  design  relates  to  the  bookkeeping  department 
proper,  and  the  information  can  be  obtained  by  keeping  accounts  with  each  de 
partment,  by  treating  the  general  operating  expenses  practically  as  a  depart 
ment,  and  by  distributing  this  expense  among  the  several  departments  each 
month.  Any  ordinary  ledger  may  be  used  in  keeping  these  accounts,  but  several 
forms  particularly  adapted  to  this  kind  of  bookkeeping  are  shown  in  Chapter  XX, 
under  the  caption  "Operating  Ledger. " 


CHAPTER   XX 

OPERATING    LEDGER 

Three  Designs,  showing  how  Factory  Charges  are  Recapitulated — Relation  to  Voucher — Account 
Numbers — Proof  with  General  Ledger — Analysis  of  Charges  by  Month  or  Year — Relation  to 
Purchase  Journal. 


(Form  16  A) 


OPERATING    LEDGER 
Operation              __   ..          _                        ._____._.                            .     __                                                      Department 

ACCOUNT  CHARGEABLE 

DISTRIBUTION 

PATE 

LABOR 

SUPERVISION 

SUPPLIES           POWER  AND 
FUEL 

MAINTENANCE:  DEPRECIATION 

INDIRECT 

FROM  LAST             TOTAl 
MONTH 

m 

RATE 

AMOUNT 

' 

' 

i  



. 

Standard  Size  8  x  11 


(Form  16  B) 


OPERATING  LEDGER 
.De 

Dartment 

OPERATION 

JANUARY 

FEBRUARY 

MARCH 

APRJL 

PROCESS 
COST 

RATE 

OPERATING 
HOURS  OR 
PIECE  WORK 

PROCESS 
COST 

RATE 

OPERATING 
PIECE  WORK 

PROCESS 
COST 

RATE 

OPERATING 
HOURS  OR 

r.fi    •      AOHK 

PROCESS 
COST 

RATE 

OPERATING 
HOURS  OR 
PIECE  WORK 

, 



Standard  Size  8  X  11 


172 


FACTORY   ORGANIZATION   AND    COSTS 


GC 
HI 

O 
Q 
Ul 

_J 

O 

z 
h 

cc 

LLf 

0. 
O 


OPERATING   LEDGER  173 

THE  forms  herewith  submitted  are  not  orthodox  in  design,  and  are  intended 
to  be  used  in  cases  where  the  accounts  are  active  and  numerous,  and  particularly 
where  it  is  desired  to  show  not  only  the  expenditures  affecting  a  department  but 
also  the  operation  chargeable.  This  form  shows  a  method  of  keeping  a  separate 
sheet  for  each  department,  arranging  the  account  at  the  top  of  each  column 
(thirteen  in  all),  and  posting  direct  from  the  several  books  of  account  common 
to  all  manufacturing  enterprises  alike,  or  from  the  back  of  a  voucher  as  ex 
plained  in  Chapter  XXIII.  After  all  of  the  charges  or  entries  have  been  made 
in  this  book  for  the  month,  the  total  should  be  ascertained  and  proven  with 
the  general  books  giving  in  total  the  expenditures  which  this  record  is  in 
tended  to  show  in  detail.  After  this  verification  has  been  made,  a  summary 
sheet  should  be  opened,  at  the  top  of  which  should  be  entered  in  each  of  the 
columns  (numbering  thirteen  in  all) — which  were  previously  used  for  the  names 
of  the  accounts — the  twelve  months  of  the  year,  the  last  column  being  used 
to  show  the  total  for  the  entire  period.  The  accounts  for  the  department  are 
to  be  written  on  the  side  of  the  form  in  the  column  provided  for  that  pur 
pose. 

In  this  way  a  comparative  record  showing  an  analysis  of  all  the  charges  against 
each  department  for  a  year  is  obtained  in  a  comprehensive  manner,  and  the  total 
of  each  account  for  any  particular  expense  is  also  shown.  Further  than  this,  a 
separate  analysis  may  be  prepared  on  the  same  record  by  entering  the  depart 
ments  at  the  head  of  the  form  and  the  accounts  on  the  side,  or  vice  versa,  thus 
showing  not  only  the  total  expenditures  relating  to  each  particular  account, 
but  also  the  amount  charged  to  each  department  for  expenses  of  the  same 
nature. 

The  same  results  can  be  obtained  if  the  accounts  are  not  numerous  and  the 
departments  few  in  number,  by  using  a  Purchase  Journal  or  Register  of  Accounts 
Payable,  ruled  with  separate  columns  for  each  department  and  each  account; 
but  this  method  requires  a  book  that  is  necessarily  cumbersome  to  handle  and  is 
not  as  practical  as  the  form  described  above.  A  Distribution  Book,  or  Register  of 
Accounts  Payable,  which  is  sometimes  better  known  as  a  Purchase  Journal,  may 
be  used  to  advantage  with  the  Operating  Ledger  by  having  columns  showing  two 
or  three  general  classifications  for  the  purpose  of  posting  to  the  Private  or  General 
Ledger,  with  which  the  Operating  Ledger  would  be  reconciled  or  balanced  each 
month. 

By  changing  the  design  of  the  form  somewhat,  one  of  the  cost  records  for 
determining  the  expenditures  chargeable  to  a  process  or  a  machine  can  be  elimi 
nated,  and  the  operating  hours  shown  in  this  form.  The  cost  of  each  operation 
or  process  per  hour  may  be  indicated,  and  this  information  summarized  by  the 


174  FACTORY    ORGANIZATION   AND    COSTS 

use  of  a  separate  form,  thus  showing  the  net  result  for  the  month  of  all  operations 
in  the  same  department.  Where  this  is  done,  the  information  as  to  expenditures 
for  each  operation  in  each  department  is  shown.  In  any  event,  this  record 
should  be  balanced  with  the  records  from  which  the  information  was  originally 
obtained. 


CHAPTER   XXI 

BILLING    SYSTEM — SALES CREDIT   CERTIFICATE 

One  Form  of  Sales  Sheet  and  One  of  Credit  Certificate  Shown — General  Use  of  the  Forms  and  Their 

Relation  to  Costs. 

(Form  17  A)   Original 


A.  B.  CO. 

MANUFACTURERS  OF 

STOVES,  RANGES  AND  FUR 
Sold  to                                          --     _-      -_ 

MACES 

New  York     . 

Address              _                       _________             .. 

DESCRIPTION                                                       |;    SELLING  PRICE 

CLASSIFICATION 

ARTICLE 

QUANTITY 

RATE 

AMOUNT      . 

No.  of  Pk 

Ship.  Wt. 
Frt.Rate 
Pkg.Chg 

^s.                                             Shipped  to                                                _ByFrt._-    

Via                                                                 By  Exp. 

.    _             Date  Shipped                                .Col..                           ^.  .  _^ 

Standard  Size  8  r  8 


(Form  17  A)  Duplicate 


Standard  Size  6H  *  * 


176 


FACTORY    ORGANIZATION   AND    COSTS 


CFoTm  17  A)  Triplicate 


COST   PRICE 


Standard  Size  8  : 


(Form  18  A)Orignal 


THE  A.B.C.  CO. 

Business NEW  YORK  nate 

Salesman w 

Favor  Of._.  CREDIT  CERTIFICATE 

Address 

ARTICLE ^^ CREDIT  ALLOWED 

DESCRIPTION QUANTITY  RATE  AMOUNT 

—  i  : 

Approved:  Correct: 

Standard  Size  7  x  8>$ 
(Form  18  A)  Duplicate 

Business...  THE  A._B.  C.  CO.  -Date 

Salesman NEW  YORK  No 

Favor  of CREDIT  CERTIFICATE 

Address 

ARTICLE SELLING  PRICE  COST  PRICE 

DESCRIPTION  QUANTITY     ||    RATE    |       AMOUNT        ||  RATE  ||        AMOUNT 

Approved:  Correct: 


Standard  Size  7  x  10 


BILLING    SYSTEM— SALES— CREDIT    CERTIFICATE         177 

IT  is  not  the  purpose  of  this  work  to  explain  the  various  billing  systems  and 
order  systems  in  vogue,  and  the  forms  herein  presented  are  shown  merely  to  illus 
trate  how  sales  should  be  handled  where  a  cost  system  is  in  operation  and  where 
it  is  desired  to  show  the  profits  of  the  business  monthly. 

One  of  the  forms  shown  represents  a  bill  and  a  sales  sheet,  but,  if  desired,  other 
copies  may  be  made,  according  to  requirements  of  the  business.  In  this  case 
the  original  is  sent  to  the  customer,  whereas  the  duplicate,  after  being  numbered, 
goes  to  the  shipping  clerk.  The  cost  of  the  article  sold  is  entered  upon  the 
triplicate  in  the  columns  provided  for  that  purpose,  after  which  these  sheets  are 
registered  in  a  sales  book,  which  may  be  ruled  so  as  to  show  both  the  selling  price 
and  the  cost  price,  and  also  the  distribution  and  classification  of  the  product  sold 
according  to  departments.  The  posting  to  the  customer's  account  is  done  in  the 
usual  way.  If  the  business  is  not  divided  into  departments,  the  sales  sheet  does 
not  have  to  be  registered;  and  in  this  case  the  sales  for  the  month,  both  at  the 
selling  price  and  the  cost  price,  can  be  totalled  on  an  adding  machine  or  carried 
forward  from  page  to  page.  The  total  sales  at  the  selling  price  are  entered  to  the 
credit  of  the  merchandise  account,  and  the  cost  price  debited  to  the  same  account 
and  credited  to  the  factory  account. 

Before  any  of  these  entries  are  made,  however,  the  goods  returned  should  be 
deducted  from  the  sales  made  at  both  the  selling  price  and  the  cost  price.  Allow 
ance  should  be  deducted  from  the  sales  only,  there  being  no  corresponding  cost 
for  such  entries.  The  credit  certificate  should  not  be  issued,  however,  until  advice 
has  been  received  from  the  receiving  department  that  the  goods  have  been  ac 
tually  returned,  or  that  the  allowance  has  been  passed  upon  by  some  person  in 
authority. 


CHAPTER  XXII 

REGISTER   OF   SALES   AND   COSTS 

Ten  Forms  Different  in  Design — Classifying  Costs  and  Sales  on  These  Records — Postings  to  the 

Ledger. 

(Form  18  A) 


REGISTER  OF  SALES  AND  COSTS 
For  the  Month  of  19..... 

SALES 

COST  OF  SALES 

DAT 

SALES 
SHEET  NO. 

NAME 

TERMS 

SALESMAN 

FOLIO    ntSSi            ABC/ 

k                      B                      C               FACTOR*        AMOUNT       4 



1  



Standard  Size  14  x  19 


(Form  19  B) 


DAILY  ANALYSIS  OF  SALES  AND  COST                                                         Dated  ...19... 

A 

B 

C 

D 

E 

F 

G 

H 

SALES      i 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

.__ 

1                        1 

J 

K 

L 

M 

N 

o 

P 

'      SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES      [_ 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST       | 

Standard  Size  U%  x  16 


REGISTER  OF  SALES  AND  COSTS 


179 


(Form  19  C) 


REGISTER   OF  SALES   AND   COSTS 

For  the  month  of  19.  

DEPARTMENT  "A"                DEPARTMENT  "  B  " 

DEPARTMENT  "C"                DEPARTMENT  "D"               DEPARTMENT  "E" 

SALES 
PRICE 

FACTORY 

PRII    •- 

ACTUAL     j 
COST  PRICE 

SALES 
PRICE 

FACTORY 

PRII   F 

ACTUAL 
COST  PRICE 

SALES 

>  RICE 

FACTORY 
PRICE 

A      T      1 
COST  PRICE 

SALES 
PRICE 

FACTORY 

,  "I    '• 

COST  PRICE 

SALES       ! 
PRICE 

FACTORY 
PRICE 

ACTUAL 
COST  PRICE 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

I 

27 

28 

29 

30 

31 

Standard  Siz.j  10  i  11 


(Form  19  D) 


REGISTER  OF  SALES  AND  COSTS 

DISTRIBUTION                                          JANUARY"                                                FEE 

5RUARY                                                   IV 

ARCH 

SALES                CC 

ST               PROFIT          ^             SALES      |          C 

3ST              PROFIT           $             SALES               C< 

)ST              PROFIT           «£ 

Papp.r: 

I                '.                    \ 

TotM 

| 

1 

Cnttnn- 

Total 

\ 

.Lito 

Total 

1 

Buffmo-  Wh*pl?- 

Total 

Siirns: 

Total 

Printing: 

Total 

GRAND  TOTAL 

Standard  Size  It  i  15}$ 


180 


FACTORY   ORGANIZATION   AND    COSTS 


REGISTER  OF  SALES 

For  the  month  of-               _.     19.. 

DESCRIPTION 

CLASSIFICATION 

ADDRESS 

TERMS 

SALESMAN 

LEDGER 
FOLIO 

AMOUNT 

No.  1 

No. 

2 

No. 

3 

No.  4 

No.  5 

No.  6 

Standard  Size  14 


(Form  19  F) 


ANALYSIS  OF  COST  OF  SALES 

ARTICLE 

QUANTITY 
SOLD 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

.AMOUNT 

RATE 

AMOUNT 

Standard-Size 


(Form  19  G) 


ANALYSIS  OF  COST  OF  SALES 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

NO.    1 

NO.    2 

NO.    3 

NO.    1 

NO.    2 

NO.    3 

RATE 

AMOUNT 

RATE 

AMOUNT     i 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

KATE 

AMOUNT 

Standard  Size  11  x  15 


REGISTER    OF    SALES    AND    COSTS  181 

THE  functions  of  a  record  of  this  kind  are  to  keep  an  abstract  of  the  sales 
made  and  to  classify  the  different  kinds  of  products  sold  according  to  the  stated 
departments,  both  at  the  selling  price  and  cost  price,  as  well  as  to  show  the  profit 
on  each  sale,  if  desired.  Several  different  designs  are  submitted,  some  providing 
for  an  entry  of  each  sale,  and  others  showing  the  total  sales  for  the  day  only. 
In  either  case  the  totals  at  the  end  of  the  month  should  be  treated  in  essentially 
the  same  manner — that  is,  the  total  sales  of  each  department  at  the  selling  price 
should  be  posted  to  the  credit  of  the  department,  and  as  each  customer  has  been 
debited  with  the  sales  made  to  him,  the  accounts  will  be  kept  in  balance.  The 
total  sales  at  the  cost  price  should  be  debited  to  each  department,  and  the  total 
of  all  departments  at  the  cost  price  credited  to  the  factory  account.  After  these 
postings  have  been  made,  each  department  will  show  the  sales  at  the  selling  price 
as  well  as  at  the  cost  price;  and  consequently  the  difference  between  the  two  sides 
of  the  account  will  represent  the  gross  profit  of  each  department.  The  factory, 
having  been  previously  charged  with  all  of  the  expenditures  relating  to  manufac 
turing,  and  now  being  credited  with  the  cost  of  goods  sold,  will  consequently  show 
the  value  of  the  inventory  on  hand,  if  the  costs  have  been  accurately  figured. 

For  those  interested  in  compiling  information  of  this  nature,  in  connection 
with  verifying  estimated  cost  calculations,  forms  particularly  suited  to  this  class 
of  work  are  fully  explained  in  Chapters  XXXII,  XXXIII,  and  XXXIV,  relating 
to  Estimated  Cost  Systems. 


CHAPTER  XXIII 

ACCOUNTS  PAYABLE  VOUCHER 

T\vo  Different  Designs,  explaining  Use  and  illustrating  Connection  with  the  Register  of  Accounts 

Payable  and  Operating  Ledger. 


(Foi  m  20  A    Front 


ACCOUNTS  PAYABLE  VOUCHER 
No.. 

Favor  of                                                                            _     _ 

Date  

DATE 
OF  INVOICE 

DESCRIPTION 

AMOUNT  OF 
INVOICE 

DEDUCTIONS 

AMOUNT  PAYABLE 

1 

- 

• 

Approved  for  Payment                                                              Correct 

Standard  Size  8H  * 


ACCOUNTS   PAYABLE    VOUCHEJR 


183 


(Form  20  A)  Back 


ACCOUNTS  PAYABLE  VOUCHER 
Date 

CLASSIFICATION  OF  ACCOUNTS 

OPERATING  ACCOUNTS 

1    Material 
2   Direct  Labor 
3   Indirect  Labor 
4  Supervision 
5   Supplies 
6  Light,  Heat  and  Power 
7   Freight,  Express  and  Cartage 
8   Maintenance 
9  Incidentals 
10  Insurance 
1  1   Taxes 
12  Telegraphing  and  Telephoning 
13   Postage,  Printing  and  Stationary 
14  Salaries 
15  Depreciation 
16  Advertising 
17.  Traveling  Expenses 
18  Commissions 
19  Legal  Expenses 
20  Interest 
21    Merchandise  Discounts 
22  Doubtful  Accounts 
23   Rent 

DEPARTMENTS 
A 

B 

C 
D 
E 
F 
G 

H 

1 
J 
K 

L 

Favor 
,A_ddra 

of 

>5 

OPERATING  LEDGER 

PRIVATE    LEDGEIi 

OEPT. 

A/CNO. 

AMOUNT 

ACCOUNT 

AMOUNT 

— 

Date  Paid 
Amount  of  Check 
Deductions 
Amount  of  Invoice 

Dheck  No. 

| 

§ 

Standard  Size.«H  x  9}$ 

184 


FACTORY   ORGANIZATION    AND    COSTS 


THE  A.B.C.  CO. 

CREDIT  VOUCHER 
i                Favor  of 

No  

Date  

DATE 

AMOUNT  OF 
INVOICE 

DEDUCTIONS 

AMOUNT 
PAYABLE 

DATE 

AMOUNT  OF 
INVOICE 

DEDUCTIONS 

AMOUNT 
PAYABLE 



_ 

Approved: 

Correct: 

Treasurer 

Boo-xespar 

Standard  Size  8  x  8H 


O 

o 
q 

03 


THE  object  of  this  form  is  to  combine  a  filing  sj'stem  with  the  bookkeeping 
in  such  a  manner  as  to  constitute  a  proper  voucher  for  all  expenditures  that  may 
be  entered  in  the  general  books  of  account.  These  vouchers  do  not  have  to  be 
paid  when  made  out,  as  there  is  no  immediate  relation  between  the  accounts 
payable  voucher  and  the  Cash  Book,  both  being  independent  records. 

When  this  system  is  properly  used,  the  voucher  should  be  accompanied  by  a 
copy  of  the  purchase  order,  a  copy  of  the  receiving  report,  and  the  creditor's 
invoice.  After  the  voucher  has  been  paid,  the  returned  check  may  be  filed  with, 
or  attached  to,  the  voucher;  but  in  any  event  the  number  of  the  check,  as  well 
as  the  date,  should  be  entered  on  the  back  of  the  voucher,  thus  forming  a  com 
plete  record  of  the  transaction. 

A  separate  voucher  should  be  used  for  each  concern,  but  as  many  invoices 
or  transactions  may  be  entered  on  a  voucher  during  any  one  month  as  may  be 


ACCOUNTS  PAYABLE  VOUCHER  185 

desired.  The  account  and  the  department  chargeable  should  be  entered  on  the 
back  of  the  voucher,  which  should  then  be  registered  or  entered  in  the  Register 
of  Accounts  Payable;  after  which  the  information  furnished  should  be  posted 
into  the  Operating  Ledger  or  the  Distribution  Book,  if  one  is  kept.  It  will  be 
found  convenient  to  have  the  names  and  numbers  of  the  accounts  printed  on  the 
back  of  the  voucher,  with  the  departments,  so  as  to  familiarize  everyone  inter 
ested  with  the  various  accounts  and  the  numbers  by  which  they  have  been 
designated. 

Another  form  of  voucher,  appearing  under  the  caption  "Check  Voucher," 
Chapter  XXV,  is  shown,  and  this  form  differs  from  the  ones  presented  in  that  the 
check  appears  on  back  of  the  voucher.  It  should  be  handled,  however,  in  sub 
stantially  the  same  way  that  this  voucher  is  used,  with  the  exception  that  only 
such  bills  as  are  to  be  paid  in  one  amount  or  by  one  check  should  be  entered  on 
the  same  voucher;  but  this  does  not  mean  that  the  voucher  must  necessarily  be 
paid  when  made  out,  as  previously  explained. 


CHAPTER   XXIV 

REGISTER    OF   ACCOUNTS    PAYABLE,    OR    PURCHASE    JOURNAL 
Four  Forms  Illustrated — Use — Explanation  of  Postings. 


Form  So.  21  B 


REGISTER      OF       ACCOUNTS       PAYABLE. 

CREDITS 

Accounts     Payable 

When  and  How  Paid 

Ma 

Voucher  No. 

Favor    of 

Terms 

Folio 

Vouchers  1'avaW 

Date 

Cheque  N'o. 

Bank 

Standard  Size  14  x  14 


REGISTER    OF    ACCOUNTS    PAYABLE 


187 


Form  So.  21  B 


F 

OR                                                           19 

UBB1T8 

Miscellaneous     Accc 

UlltS 

Op 

i.i.  .iu     Accu 

mti 

r 

roperty    Acco 

unt:; 

Standard  Size  II  x  1! 


CO 

z 

D 

o 

o 
o 

< 

u. 
O 

cc 
u 

H 

co 

o 

tu 

DC 


Oi 

*;>. 

s  £: 

9  5  • 

ill 

K   feg 

M 

1  s  * 

0 

c 

CO 

M 

c 
o 
£ 

t 

Cfl 
LJ 

n 

II 

o> 

c 

0 

u. 

1 

s 

FACTO 
8UPPU 

Ul 

^ 

CO 

?     tr 

o:     1- 

>• 

ij      ^ 

< 
Qu 

rn 

HO3N 
133SIW 

1- 

z 

ii 

j    u 

0| 
0 

u 

EGISTER  OF  / 

ACCOUNTS 

• 

C£ 

s  a 

I    z 

0 

1! 

H      "j 

av.«vd 
gnooov 

A.      " 

CO 

l     C 
0     0 

Q 
0 

LEDGER 

FO1  10 

FAVOR  OF 

VOUCHER 
NO. 

i 

190 


FACTORY   ORGANIZATION   AND    COSTS 


PURCHASE  JOURNAL 

DATE 

NAME 

FOLIO 

AMOUNT 

CLASSIFICATION 
NO.1 

CLASSIFICATION 
NO.  2 

CLASSIFICATION 

SUNDRY 

NO.  3 

AMOUNT 

ACCOUNT 

H 

.  

_-  

Standard  Size  8  x  11 


As  the  name  implies,  this  book  relates  to  purchases  and,  in  fact,  to  invoices 
for  all  expenditures  connected  with  the  business,  including  pay  rolls.  The  design 
is  such  that  the  accounts  may  be  registered  and  the  date  of  payment  indicated, 
which  will  in  some  cases  make  it  unnecessary  to  keep  personal  accounts  with 
creditors.  In  fact,  some  of  the  accounts  may  be  kept  in  this  manner,  and  personal 
accounts  opened  in  a  regular  Purchase  Ledger  for  the  more  active  accounts.  The 
principal  feature  of  these  designs  is  the  facility  afforded  for  distribution  of 
charges  to  the  various  accounts  by  the  use  of  special  columns  headed  with  the 
names  of  these  accounts,  the  totals  of  which  are  posted  into  the  ledger  at  the 
end  of  the  month  in  one  amount.  Such  items  as  may  be  entered  in  the  miscel 
laneous  columns  must,  however,  be  posted  separately.  A  voucher  form  may  or 
may  not  be  used  with  a  record  of  this  kind,  at  the  option  of  the  reader. 

Where  an  Operating  Ledger  or  Distribution  Book  is  used  in  connection  with 
this  record,  the  headings  should  be  as  to  classification  only,  inasmuch  as  a  de 
tailed  analysis  of  the  expenditures  entered  in  these  columns  will  be  found  in  the 
Distribution  Book  or  Operating  Ledger.  Where  no  voucher  is  used,  and  a  de 
tailed  analysis  according  to  department  is  desired,  columns  should  be  ruled  show 
ing  the  account  number,  so  that  an  analysis  of  these  expenditures  may  be  ob 
tained.  This  can  be  done  either  by  posting  from  these  columns  to  the  Operating 
Ledger  according  to  the  respective  account  numbers,  or  by  summarizing  the  col 
umns  in  this  book  at  the  end  of  the  month.  In  any  event,  the  totals  entered  at 
the  end  of  the  month  should  be  posted  to  the  General  Ledger  against  the  proper 
account. 


CHAPTER  XXV 

CHECK    VOUCHERS 
Two  Distinct  Forms — Explanation  of — How  Used. 

(Form  22  A)  Front 


Credit  Vouch 
Favor  of  

er  No 

Check  Voucher 
THE  A.  B.C.  COMPANY, 
NEW  YORK. 

No._.   - 

DATE 

AMOUNT 
INVOICE 

DEDUCTIONS 

AMOUNT 
PAYABLE 

DATE 

AMOUNT 
INVOICE 

DEDUCTIONS 

AMOUNT 
PAYABLE 

Check  Voucr 
Pay  to  the  o 

ier  No. 

New  York,  ...                     ...190... 

rder  of 

UNION  NATIONAL  BANK. 

NEW  YORK. 

Dollars 

In  full  payment  of  above  account. 

THE  A.  B.C.  COMPANY 

Treasurer. 

Standard  Size  7>£  x 


(Form  22  A)  Bark 


THE  A.  B.C.  COMPANY, 

NEW  YORK. 

ENDORSEMENTS. 

Favor  of                                                 - 

Credit  Voucher  No. 

Check  Voucher  No. 

$ 

Dated                                                                    100    . 

Standard  Size  7^  * 


192 


FACTORY    ORGANIZATION    AND    COSTS 


Check  Voucher  No New  York 19... 

FIRST  NATIONAL  BANK 

NEW  YORK 

Pay  to  the  order  of $ 

Dollars 

In  full  payment  of  account 

THE  A.  B.  C.  COMPANY. 

President  Secretary 

Standard  Size  7K  *  75* 

(Form  22  B) 

THE  A.  B.  C.  CO.  Check  Voucher  No.- 

Favor  of ._ „._______. .____ 

Z1T°F       !     DEDUCTIONS  DATE         |      *MOUNT  °F  DEDUCTIONS 

INVOICE  PAYABLE  INVOICE  PAYABLE 

i 

DISTRIBUTION 
DEPARTMENT 

ACCOUNT         ACCOUNT       ACCOUNT       ACCOUNT        ACCOUNT       ACCOUNT 
NO NO. NO NO. NO. NO. 

Approved  for  Payment:  Correct 

Standard  Size  7M  *  7& 


ONE  of  the  forms  herewith  submitted  illustrates  a  check  with  columns  pro 
vided  for  a  statement  of  the  bills  covered  by  the  amount  of  the  check,  and  is 
only  for  the  purpose  of  securing  a  proper  receipt  with  the  return  of  the  cancelled 
check  from  the  bank.  The  other  form  shows  all  of  this  information  and,  in  addi 
tion,  the  account  and  department  chargeable.  In  the  form  first  mentioned,  the 
entry  is  made  in  a  cash  book  only ;  whereas,  in  the  latter  case,  an  entry  is  made  in 
the  register  of  accounts  payable,  or  Purchase  Journal,  as  well  as  in  the  Cash  Book. 

Both  forms  will  be  found  useful  and  easy  to  operate. 


CHAPTER  XXVI 

CASH    SYSTEM 

Register  of  Receipts  and  Disbursements  (2  forms) — Report  of  Expenditures  (1  form) — Cash 
Voucher  (1  form)— Pay  Envelope  (1  form)— Distribution  of  Money  for  Pay  Roll  (2  forms)— 
Explanations  Referring  to  General  Use — Deposit  of  Currency — Petty  Cash  Funds — Bank 
Columns. 


Form  No.  23  B. 


KKGISJEK    OF    KECEIPTS     IL    DISBURSEMENTS 

CASH        BECEIVED 

BANK    ACCOUNTS 

Date 

Keceived    from 

Udg.r 

Folio 

Gross    Amounts 

Deductions 

Net  Cash 

First  National  Bank 

L^ij,, 

Uiicilluoou* 

UUwuool 

Interest 

Amount 

DepoelU 

Cbxju. 

No. 

Standard  Size  14  <  H 


194 


FACTORY    ORGANIZATION    AND    COSTS 


Form  No.  23  B. 


For  the  month  o(_ 

-19 

CASH        DISBURSEMENTS 

Date 

Paid    To 

Ledger 
Folio 

Gross    Amounts 

Deductions 

Purchase 
LeJjer 

*"rp,',>\™o°" 

HiuellUMUl 

Discount 

Standard  Size  14  z  14 


(Form  21  A) 


D 

epartment 
ENDITURES 

No 

REPORT  OF  EXP 
From--      -_                                        _10.                       to 

19 

PAY  ROLL 

NAME 

TOTAL 
HOURS 

RATE 

AMOUNT 

SIGNATURES 

SUMMARY   OF  CASH    RECEIPTS   AND    DISBURSEMENTS 

DESCRIPTION 

SUNDAY 

MONDAY 

TUESDAY 

WEDNESDAY 

THURSDAY           FRIDAY            SATURDAY           TOTAL 

Disbursements: 

Material 
Labor 
Incidentals 
Travel 
Postage 
Telegrams,  etc. 

Total 

Balance  from  last  Week 
Received 

|| 

BALANCE  ON   HAND 

Correct                                                                             Cva™ 

i          ,               .i 

1  "'_                                                '                                        '   &"«*reu   "/- 

Standard  Si/..-  11  x  12 


§g 


tr  3 


>s 

rn  o 


196 


(Form  25  A) 


Pay  to. 

Account 

Charge 

$ 

Approved  by 


CASH   VOUCHER 


190 


No.. 


Standard  Size  1x6 


( Fcrt-rn  28  A")  Front 


Name.. 


Two  we.eks  ending 


Standard  Size  2>£  x  3% 
(Form  28  A). Back 


No. 


Received  from  The  A.  B,  C.  Company  my  wages 
wages  in  full  for  Two  weeks  ending 


Standard  Stze  2^'x 


CASH    SYSTEM 


197 


PAY  ROLL  DISTRIBIT 

.   .                                            DPI-I 

rtON 

artment 
.     19  

V\  t-t'i\  ending 

INDIVIDUAL  PAY 

DOLLARS 

CENTS 

AMOUNT 

50 

20 

10 

5 

2 

1 

50     !     25 

10 

5 

1 

Approv 

sd:                                                            Correct, 

Standard  Size  5 


(Form  27  B) 


PAY  ROLL  DISTRIBUTION 

Week  ending 

19 

DISTRIBUTION 

DENOMINATION 

FACTORY 

OFFICE 

TOTAL 

Dollars 

Fifties 

Twenties 

Tens 

Fives 

Twos 

Ones 

Cents 

Fifties 

Quarters 

Dimes 

Fives 

Ones 

Total 

Approved:                                                        Correct 

Standard  Size 


NOTWITHSTANDING  the  importance  of  other  records  and  systems  connected 
with  modern  methods  of  accounting  practice,  there  is  a  tendency  on  the  part  of 
the  business  man  to  regard  his  cash  system  with  more  care  and  to  give  it  promi 
nence  over  all  the  other  records.  But  even  where  this  is  done,  records  relating 


198  FACTORY   ORGANIZATION    AND    COSTS 

to  this  department  are  in  many  cases  so  poorly  designed  and  the  S}rstem  so  loose 
that  dishonesty  could  result  which  would  not  easily  be  detected,  unless  the  ser 
vices  of  an  expert  accountant  were  retained. 

One  of  the  principal  mistakes  made  in  handling  the  Cash  Book,  for  instance, 
is  not  to  deposit  all  of  the  currency  received,  and  to  make  cash  payments  out 
of  these  funds.  This  results  in  a  cash  system  that  is  virtually  both  a  general 
cash  record  and  a  petty  cash  record.  A  book  of  this  kind,  unless  properly  de 
signed,  involves  unnecessary  detail  incident  to  recording  small  items  of  expendi 
ture,  and  makes  it  difficult,  ordinarily,  to  balance  the  cash.  By  this  plan  the 
balance  shown  by  the  bank  check  books,  as  well  as  the  petty  cash  or  currency 
on  hand,  must  be  included  in  proving  the  balance  shown  by  the  Cash  Book. 

The  most  approved  method  of  handling  receipts  and  disbursements  is  to  use 
a  general  cash  book  and  enter  therein  all  receipts,  from  customers  and  from  cash 
sales  as  well  as  from  other  sources;  to  deposit  all  of  these  funds  daily,  or  at  any 
other  convenient  period;  and  to  make  all  payments  by  check.  The  Cash  Book 
will  then  represent  the  balances  shown  in  the  check  books,  independent  and 
separate  from  any  petty  cash  funds  that  may  be  kept.  In  this  respect  the  best 
way  to  handle  petty  cash  is  to  draw  a  check,  say  for  $100,  which  should  be 
charged  to  a  petty  cash  account  in  the  General  Ledger.  If  the  fund  is  found  too 
small  and  it  is  decided  to  increase  the  amount,  another  check  should  be  drawn, 
which  should  then  be  entered  in  the  same  way  and  charged  to  the  petty  cash 
account.  If  it  is  decided  to  decrease  this  amount,  then  the  amount  should  be 
entered  in  the  General  Cash  Book  as  cash  received  and  deposited,  being  subse 
quently  transferred  or  posted  to  the  credit  of  the  petty  cash  account  in  the  Ledger. 
As  these  funds  are  used  or  expended,  proper  petty  cash  vouchers,  a  sample  of 
which  is  herein  submitted,  should  be  filled  out.  At  the  end  of  the  week,  if,  for 
instance,  $65.00  has  been  expended,  an  analysis  or  summary  of  these  expendi 
tures  should  be  made  and  a  cash  check  for  this  amount  drawn.  This  check 
should  be  entered  on  the  disbursement  side  of  the  Cash  Book,  and  the  amount, 
e.  g.  $65.00,  charged  to  the  proper  accounts.  This  check  should  then  be  cashed 
and  the  amount  returned  to  the  petty  cash  drawer;  which,  added  to  the  amount 
of  the  fund  that  was  not  expended — in  this  case  $35.00 — will  reimburse  the  cash 
fund  for  the  expenditures  made  and  increase  the  balance  or  fund  to  the  original 
amount — that  is,  $100.00. 

In  the  forms  of  cash  books  submitted  columns  are  provided  so  that  the  de 
posits,  the  checks,  and  the  bank  balances  for  each  bank,  from  day  to  day,  can 
be  constantly  before  the  management.  This  eliminates  the  necessity  of  using 
check  book  stubs  for  deposits.  In  these  records  the  columns  are  so  ruled  as  to 
show  the  gross  amount  of  the  accounts  paid  by  customers.  Deductions  for  dis- 


CASH    SYSTEM  199 

counts  or  allowances  may  be  entered  in  the  several  columns  headed  "  Deductions," 
and  the  net  amount  entered  in  the  net  cash  column;  which  column,  at  the  end  of 
the  day,  is  totalled  and  entries  made  of  the  deposits  in  the  proper  bank  columns. 
To  illustrate  this  point  more  clearly:  should  a  customer  remit  for  an  account 
amounting  to  and  carried  in  the  Ledger  at  $100,  and  should  he  deduct  5  per  cent., 
or  $5.00,  discount,  sending  a  check  for  the  balance,  $95,  the  $100  would  be 
entered  in  the  customers'  Ledger  column  and  the  $5.00  discount  in  the  discount 
column;  and  the  amount  of  the  check,  $95,  in  the  net  cash  column.  The  same 
explanation  will  apply  to  disbursements  or  cash  paid  to  creditors. 

A  record  of  this  kind  should,  of  course,  be  posted  in  the  usual  way,  and  any 
special  columns  desired  by  the  bookkeeper  may  be  added. 

In  this  chapter  will  be  found  some  forms  that  will  be  useful  in  ascertaining  the 
amount  of  each  denomination  or  kind  of  currency  required  for  pay  rolls.  One  of 
these  forms  shows  the  individual  pay  of  each  employee  and  the  denominations 
necessary  for  the  exact  amount  of  his  pay;  whereas  the  other  is  a  summary  of  all 
of  the  other  sheets. 

In  addition  to  the  petty  cash  voucher  just  mentioned,  another  form  or  report 
of  expenditures  is  shown.  This  form  is  to  be  used  where  outside  work  or  contracts 
are  involved — where  the  funds  are  charged  to  the  superintendent  in  charge  of  the 
work,  and  his  account  credited  with  the  weekly  expenditures,  including  pay  roll. 

It  is  not  the  intention  of  this  work  to  describe  or  submit  a  list  of  designs  of 
cash  books  or  any  books  of  account,  relating  to  the  general  office,  and  the  ones 
submitted  or  described  are  illustrated  only  because  they  are  used  in  connection 
with  the  complete  systems  explained  later,  so  that  the  reader  may  clearly  under 
stand  how  the  entire  system,  including  all  records,  should  be  operated. 


CHAPTER  XXVII 

GENERAL  LEDGER!  CLASSIFICATION  OF  ACCOUNTS,  LEDGER  FORMS,  AND 

CUSTOMERS'  RECORDS 

Classification  of  Accounts — Customers'  Ledger  showing  Profit  or  Loss  on  Sales  (1  form) — Cus 
tomers'  Record  Card  (1  form) — Customers'  Record  of  Pattern  Costs  (2  forms) — Statement  of 
Private  Ledger  (1  form) — General  Ledger — Controlling  Accounts — Consignment  Accounts — 
Factory  Accounts — Assets — Liabilities — Reserve  Funds — Surplus — Administrative  Expenses — 
Depreciation — Selling  Expenses — Method  of  Keeping  Accounts  according  to  Classification — 
Classification  of  Accounts  in  Detail — New  Form  of  Private  Ledger — Profit  on  Customer. 


Customer 
Address 

Cl 

JSTOMERS  LEDGER 

Ratm 

y 

DEBIT 

BALANCE 

CREDIT 

DATE 

DESCRIPTION              G 

ROSS  PROFIT 

ft         C 

OST  OF  SALES 

SALES 

AMOUNT 

AMOUNT 

FOLIO 

DESCRIPTION 

DATE 



~1  '  ~  "- 



Standand  Size.ll  x.12 


(Fora* 29  A) 


State  . 
Name 
Rating 

CUSTOMERS  RECORD  CARD 

City 

Route 

Dun                                            Bradstreet                                                 Spec  al 

CALLS 

SALES 

DISCONTINUED 

DATE 

BY                             RESULT                   DATE              AMOUNT                            COST 

DATE 

REASON 

Standard  Size  1x6 


GENERAL  LEDGER:  CLASSIFICATION  OF  ACCOUNTS       201 


(Form  30  A) 


Custome 
Descripi 

PA 

FTERN  COSTS 

Pattern  No._ 

on 

SALES 

COST  OF  SALES 

GROSS  PROFIT 

;      DATE 

SALES 
SHEET 
NO. 

ORDER 
NO. 

NO.  OF 
PIECES 

WEIGHT 
EACH 

TOTAL 
WEIGHT 

PR  CE 
PER 

POUND 

AMOUNT 

TOTAL 

PER 
POUND 

AMOUNT 

TOTAL 

PER 
POUND 

AMOUNT 

TOTAL 

Standard  Size  7  x  10 


Customer 

Address.. 

PATTERN  CO! 

3TS 
Card  N 

ji                                         FOR   THE  CURRENT  MONTH                                                                              FOR  THE  FISCAL  YEAR   TO   DATE 

PATTERN 

SALES 

COST  OF  SALES 

GROSS  PROFIT 

"ATTERH 

SALES 

COST  OF  SALES 

GROSS  PROFIT 

|     NO. 

PER  LB. 

AMOUNT 

PER  LB. 

AMOUNT 

PER  LB. 

AMOUNT 

J 

NO. 

PER  LB. 

AMOUNT 

PER  LB. 

AMOUNT 

?L-'.     '^B. 

AMOUNT 

$      ' 

Standard  Size  7  x  10 


GENERAL  LEDGER:  CLASSIFICATION  OF  ACCOUNTS       203 


GENERAL  LEDGER— CLASSIFICATION  OF  ACCOUNTS 


PROPERTY: 

Real  Estate  and  Buildings. 

Machinery  and  Tools. 

Factory  Furniture  and  Fixtures. 
DEFERRED  CHARGES: 

Factory. 

Administrative  Expenses. 

Selling  Expenses. 


CAPITAL. 

CURRENT  LIABILITIES 

Notes  Payable. 

Accounts  Payable. 

Pay  Rolls. 

Interest  Payable. 


ASSETS 

CURRENT  ASSETS. 

Cash. 

Notes  Receivable. 

Accounts  Receivable. 

Consignments. 

Material  finished,  in  process,  and  raw. 
DEFICIT. 

LIABILITIES 

RESERVE  FUND: 

Doubtful  Accounts. 
Depreciation. 

SURPLUS. 


Men's  Hosiery. 


SALES   AND   COST   OF   SALES 
Ladies'  Hosiery. 


Children's  Hosiery. 


Selling  Expenses. 


GENERAL   EXPENSES 

Administrative  Expenses. 


OPERATING   LEDGER  OR  DISTRIBUTION  BOOK 
CLASSIFICATION   OF  ACCOUNTS 

OPERATING   ACCOUNTS 


1  Material. 

2  Direct  Labor. 

3  Indirect  Labor. 

4  Supervision. 

5  Supplies. 

6  Light,  Heat  and  Power. 

7  Freight,  Express  and  Cartage. 

8  Maintenance. 

9  Incidentals. 

10  Insurance. 

11  Taxes. 

12  Telegraphing  and  Telephoning. 


13  Postage,  Printing,  and  Stationery. 

14  Salaries. 

15  Depreciation. 

16  Advertising. 

17  Travelling  Expenses. 

18  Commissions. 

19  Legal  Expenses. 

20  Interest. 

21  Merchandise  Discounts. 

22  Doubtful  Accounts. 

23  Rent. 


204 


A  Storeroom  or  Raw  Material  Account.          H  Boarding  and  Pressing. 

B  Picking.  I  Finishing. 

C  Carding.  J  Packing. 

D  Spinning.  K  Box. 

E  Winding.  L  General  Operating  Expenses. 

F  Knitting.  M  Selling  Expenses. 

G  Dyeing.  N  Administrative  Expenses. 

The  first  question  to  be  considered  in  designing  a  system  is  the  results  to  be 
obtained.  If  the  system  is  to  be  a  complete  one,  these  results  will  ultimately  be 
shown  in  the  general  accounts,  which  are  usually  contained  in  a  General  Ledger. 
These  accounts  should  be  so  classified  as  to  show  both  the  financial  status  and 
earnings  of  an  enterprise.  The  proper  classification  and  arrangement  of  these 
accounts  will  affect  to  a  great  extent  the  accuracy  and  clearness  of  the  results 
to  be  obtained.  It  is  not  necessary  in  the  case  of  a  small  enterprise  to  have  an 
elaborate  or  extensive  classification  of  accounts.  A  few  will  answer  all  purposes 
in  such  cases,  providing  that  the  purpose  of  each  account  is  well  defined  and 
charges  and  credits  to  these  accounts  during  the  year  are  properly  made.  The 
accounts,  however,  must  be  so  kept  and  arranged  as  to  admit  of  showing  proper 
results,  either  at  the  end  of  the  year  or  monthly,  according  to  the  general  plan  of 
the  system. 

In  the  classification  of  accounts  herein  set  forth,  it  will  be  observed  that  the 
assets  appear  under  three  principal  classifications — namely,  Property,  Deferred 
Charges,  and  Current  Assets.  The  accounts  under  the  caption  first  mentioned 
represent  the  fixed  assets  of  the  enterprise,  and  by  this  term  is  meant  assets  that 
cannot  readily  be  converted  into  cash.  The  accounts  appearing  under  the  cap 
tion  "Deferred  Charges"  represent  expenses  chargeable  to  future  operations  of 
any  nature  whatever,  such  as  unexpired  insurance,  prepaid  interest,  unusual 
advertising  charges,  catalogue  expenses,  or  any  other  expenses  that  should  not 
be  entirely  charged  off  during  any  one  period  but  should  be  pro-rated  over  several 
months  or  fiscal  periods.  This  can  be  done  by  charging  the  original  amount  to 
any  account  properly  named  under  this  classification,  and  by  writing  off  or  credit 
ing  to  this  account  the  proper  proportion  each  month,  charging  the  amount  thus 
written  off  to  some  suitable  expense  account.  Under  the  last  classification  men 
tioned — i.  e.,  Current  Assets,  will  appear  assets  of  a  nature  that  may  be  termed 
quick  assets,  which  can  be  realized  upon  currently  or  from  time  to  time,  and  are 
intended  to  represent  the  accounts  from  which  funds  can  be  derived  to  meet 
current  liabilities. 


GENERAL  LEDGER:  CLASSIFICATION  OF  ACCOUNTS       205 

Attention  is  called  to  the  account  styled  "Accounts  Receivable/' which  rep 
resents  the  amount  due  from  customers.  As  the  method  of  keeping  such  an 
account,  which  is  called  a  controlling  account,  may  not  be  familiar  to  the  reader, 
an  explanation  is  given.  At  the  time  the  system  is  started,  the  balance  due  from 
customers  as  shown  by  the  trial  balance,  or  a  detailed  list  should  be  entered  in 
total  to  the  debit  of  this  account  in  the  General  Ledger.  At  the  end  of  each  month 
the  total  sales  should  also  be  posted  to  the  debit  of  this  account,  as  well  as  any 
other  charges  against  accounts  kept  in  the  customers'  ledger,  from  either  the 
Sales  Book,  Journal,  or  Cash  Book.  This  account  should  then  be  credited  with  all 
cash  received  during  the  month  from  customers  in  total,  and  also  with  any  other 
credits,  such  as  returns  and  allowances,  or  adjusting  entries  of  any  nature  what 
ever.  The  difference  between  the  two  sides  of  the  account  will  then  show  the 
balance  due  from  customers  at  the  end  of  the  month.  To  verify  this  balance  the 
balances  should  be  taken  off  from  the  customers'  ledger  in  detail,  and  the  total 
of  this  schedule,  or  trial  balance,  should  agree  with  the  total  shown  by  the  "  Ac 
counts  Receivable"  account  in  the  General  Ledger.  It  is  apparent  that  the  cus 
tomers'  individual  accounts  are  charged  and  credited  individually  with  the  same 
transactions  of  entries  that  are  charged  and  credited  to  the  "Accounts  Receiv 
able"  account  in  the  General  Ledger  in  total;  and  that,  therefore,  the  balance,  as 
shown  by  the  "Accounts  Receivable"  account,  should  correspond  with  the  total 
balances  as  taken  from  the  Customers'  Ledger. 

The  next  account  to  be  discussed  is  the  Consignment  Account.  This  is  a  con 
trolling  account,  the  same  as  the  account  just  explained,  and  represents  the  total 
of  the  accounts  which  appear  in  the  Consignment  Ledger  in  detail.  In  keeping 
this  account  it  should  be  borne  in  mind  that  consignments  should  be  charged  in 
the  general  books  at  cost,  and  not  at  the  selling  price.  The  entry  is  made  merely 
to  transfer  the  items  from  a  regular  stock  account  to  the  consignment  account, 
in  order  to  keep  a  record  of  the  location  of  the  finished  stock,  and  cannot  be  con 
sidered  in  any  sense  as  a  sale.  Where  consignments  are  active  and  where  the  ac 
counts  are  numerous,  especially  in  particular  sections  of  the  country,  several 
controlling  accounts  may  be  kept,  such  as  New  York  Consignments,  Boston  Con 
signments,  Chicago  Consignments,  etc.,  each  one  being  supported,  however,  by  a 
separate  ledger  or  section  of  a  ledger  showing  the  individual  accounts.  As  the 
goods  are  sold,  the  consignment  account  should  be  credited  and  the  customers' 
account  charged;  but  the  terms  of  the  consignment  will  regulate  the  kind  of 
entry  best  suited  in  each  particular  case. 

The  next  account  calling  for  explanation  is  the  Factory  Account.  This  ac 
count  represents  the  inventory  of  raw  material  as  well  as  finished  stock  and  goods 
in  process  of  manufacture.  If  desired  it  may  be  divided  into  three  separate 


206  FACTORY    ORGANIZATION   AND    COSTS 

accounts  for  each  section  of  the  inventory.  Where  the  former  method,  which  is 
the  simplest,  is  adopted,  the  information  as  to  charges  and  credits  to  the  account 
would  be  obtained  as  follows:  At  the  beginning  of  the  period,  the  value  of  the 
inventory  at  cost  should  be  entered  to  the  debit  of  the  factory  account  in  the 
General  Ledger.  All  expenditures  for  material,  labor,  and  expenses  relating  to 
manufacturing,  as  shown  by  the  several  books  of  account,  should  then  be  posted 
to  the  debit  of  this  account  each  month.  The  total  shipments  or  sales  at  the  cost 
price  should  be  credited  to  this  account  monthly,  the  offset  to  this  last  entry  being 
a  charge  to  the  merchandise  account  or,  if  the  sales  are  classified,  to  a  department 
account.  The  difference  between  the  two  sides  of  the  account  will  now  show  the 
value  of  the  inventory  at  cost,  providing  the  sales  have  been  priced  accurately  as 
to  cost.  This  method  of  handling  the  factory  account  relates  to  a  system  where 
the  profits  based  on  book  inventory  are  shown  each  month,  as  will  be  shown  in 
later  chapters.  It  can  be  seen  from  the  foregoing  remarks  that  only  total  amounts 
are  indicated  in  the  factory  account,  and  that  it  would  be  necessary  to  analyze 
these  charges  if  it  were  desired  to  show  a  statement  of  the  various  expenses  and 
charges  properly  classified.  In  Chapter  XX  will  be  found  forms  illustrating  oper 
ating  ledgers  and  distribution  books  which  can  be  used  for  the  analysis  of  these 
charges. 

In  this  manner  the  material  purchases,  the  direct  or  productive  labor,  and 
the  indirect  expenses  of  the  factory  may  be  shown  from  month  to  month  in  a 
concise  manner,  and  in  a  way  that  will  enable  the  bookkeeper  to  balance  these 
accounts  with  the  factory  account.  If  it  is  desired  to  further  classify  the  ac 
counts — that  is,  to  show  the  expenses  of  each  department  of  the  factory  instead 
of  the  expenses  of  the  factory  as  a  whole,  this  can  be  accomplished  by  using  the 
same  forms.  Separate  accounts  for  the  various  kinds  of  expenses  chargeable  to 
each  of  these  departments  may  be  opened  if  desired,  and  where  this  is  done  these 
records  should  be  balanced  or  proven  with  the  factory  account  at  the  end  of  each 
month.  From  these  remarks  it  can  be  seen  that  the  factory  account  is  just  as 
much  of  a  controlling  account  as  the  customers'  ledger  account,  and  should  be 
treated  in  precisely  the  same  manner. 

Under  the  caption  "Liabilities,"  in  this  classification  of  accounts,  it  will  be 
observed  that  the  accounts  are  classified  into  four  separate  general  classifica 
tions — that  is,  Capital,  Current  Liabilities,  Reserve  Funds,  and  Surplus.  Capital, 
in  the  case  of  a  corporation,  represents  the  capital  stock,  either  authorized  or 
issued,  according  to  whether  the  treasury  stock  is  carried  as  an  asset  or  not. 
Where  the  enterprise  is  operated  by  an  individual  or  firm,  the  capital  would 
represent  at  closing  periods  the  net  worth  of  the  partner  or  partners,  and  would, 
of  course,  be  subject  to  change  each  year. 


GENERAL  LEDGER:  CLASSIFICATION  OF  ACCOUNTS       207 

All  of  the  accounts  appearing  under  the  caption  "Current  Liabilities"  repre 
sent  the  immediate  liabilities  or  accounts  that  must  be  paid  currently  from  the 
current  funds.  Attention  is  called  to  the  account  styled  "Accounts  Payable," 
which  represents  the  amount  due  individuals  and  companies  as  shown  in  the 
Purchase  Ledger.  The  same  remarks  relating  to  the  method  of  keeping  the 
"Accounts  Receivable"  account,  previously  explained,  apply  also  to  this  account, 
which  is  also  a  controlling  account  and  should  be  balanced  or  compared  each 
month  with  the  total  shown  by  the  trial  balance  of  the  Purchase  Ledger. 

The  method  of  treating  the  reserve  fund  for  doubtful  accounts  is  to  ascertain 
the  total  volume  of  business  done  for  a  period  of,  say,  five  or  ten  years,  and  to 
calculate  the  total  amount  of  bad  debts  for  the  same  period,  and  thus  ascertain 
the  per  cent,  of  loss  on  the  volume  of  business.  This  per  cent,  of  the  sales  should 
be  charged  each  month  as  one  of  the  administrative  expenses,  the  amount  being 
credited  to  this  reserve  fund.  As  accounts  are  known  to  be  bad  or  worthless,  the 
account  may  be  charged  to  this  reserve  fund,  credit  being  given  to  the  individual 
account  as  well  as  to  the  controlling  account. 

The  depreciation  fund,  so  far  as  bookkeeping  is  concerned,  should  be  treated 
in  the  same  manner — that  is,  the  amount  charged  each  month  to  the  proper 
expense  account  and  credited  to  this  reserve  fund.  As  to  the  method  of  arriving 
at  the  rate  of  depreciation  and  the  proper  account  to  be  charged,  the  reader  is 
referred  to  Chapter  III,  relating  to  "Analysis  of  Cost  Accounting." 

The  surplus  account,  of  course,  explains  itself;  but  it  should  be  credited  with 
the  net  profits  of  the  business  each  year  and  charged  with  dividends  in  the  case  of 
a  corporation,  no  such  account  being  kept  where  an  individual  firm  operates  the 
enterprise. 

The  accounts  shown  under  the  captions  "Sales"  and  "Cost  of  Sales"  relate 
to  the  volume  of  business  done.  Each  account  is  charged  with  the  cost  of  goods 
sold,  and  the  total  of  these  charges  is  credited  to  the  factory  account,  as  has 
already  been  explained.  These  accounts  or  departments  are  credited  with  the 
sales  at  the  selling  price,  and  the  total  amount  of  all  these  credits  is  charged  to 
the  customers'  ledger  controlling  account.  The  difference  between  the  two  sides 
of  the  account  will  now  show  the  gross  profit,  provided  that  the  sales  have  been 
properly  priced  as  to  cost.  The  selling  and  administrative  expenses  shown  in  this 
classification  should  now  be  distributed  among  these  departments,  on  the  basis  of 
the  volume  of  business  done  in  each  department  at  the  cost  price.  These  accounts 
would  then  show  the  profit  in  each  of  the  departments.  The  next  schedule  shows 
the  various  sub-accounts,  and  is  arranged  so  as  to  be  easily  kept,  not  merely  accord 
ing  to  the  name  of  the  account,  but  also  by  department,  thus  indicating  the  expendi 
tures  in  the  various  branches  of  the  business.  It  will  be  seen  that  the  name  of 


208  FACTOKY    OKGANIZATION   AND    COSTS 

the  accounts  are  all  standard,  that  each  account  is  numbered,  and  that  the  de 
partments  are  known  by  letters  instead  of  by  numbers,  the  object  being  to  stand 
ardize  the  accounts  and  to  represent  each  in  the  bookkeeping  by  numbers.  As 
an  illustration  of  how  these  accounts  are  operated,  if  it  should  be  desired  to  charge 
supplies  to  department  D,  the  entry  would  be  made  5  D,  which  would  mean  Spin 
ning  Department  supplies;  or,  if  it  were  desired  to  charge  this  same  account  with 
insurance,  the  entry  would  be  10  D,  which  is  much  simpler  than  writing  the  words 
Insurance  and  Spinning.  In  other  words,  an  expenditure  relating  to  any  one  of 
these  twenty- three  accounts  can  be  charged  to  any  one  of  the  departments. 

This  does  not  mean,  however,  that  the  same  accounts  or  all  of  them  are  to  be 
kept  with  each  department,  as  no  one  department  would  require  all  of  the  ex 
penditures  enumerated,  nor  would  the  expenditures  in  the  several  departments 
be  of  a  similar  nature.  Some  of  the  accounts,  in  fact  most  of  them,  do  relate  to 
all  departments,  and  all  of  the  accounts  relate  to  some  of  the  departments.  If  it 
is  not  desired  to  keep  the  business  by  departments,  then  only  the  accounts  shown 
may  be  opened  in  the  Ledger  and  the  departments  omitted ;  but  in  either  case  the 
totals  shown  in  this  ledger  should  be  balanced  with  the  factory  account  in  the 
General  Ledger  every  month.  The  purpose  of  this  analysis  and  its  value  to  the 
business  man  are  clearly  shown  in  Chapter  XIX,  in  connection  with  the  "  State 
ments  of  Factory  Expenditures." 

One  of  the  forms  herein  presented  illustrates  a  new  design  of  private  ledger, 
showing  on  the  right-hand  side  the  trial  balance  or  statement  of  affairs  in  compara 
tive  form,  and  on  the  left-hand  side  an  analysis  of  the  transactions  affecting  these 
accounts  during  the  month.  This  information  is  obtained  from  the  totals  of  the 
books  of  original  entry,  and  from  other  transactions  relating  to  the  private  ledger 
accounts,  the  entries  being  made  in  the  proper  columns  opposite  the  account 
affected.  If  this  form  is  used  it  will  take  the  place  of  not  only  a  ledger,  but  of  the 
trial  balance,  the  profit  and  loss  statement,  and  balance  sheet  as  well,  and  will 
give  the  same  information  with  less  work  than  is  necessary  by  the  former  method. 
Of  course,  an  ordinary  form  of  ledger  may  be  used  if  desired. 

Other  special  designs,  in  addition  to  this  private  ledger  form,  are  shown  for 
customers'  records  and  ledger  accounts,  the  principal  object  of  which  is  to  show 
whether  or  not  a  profit  is  derived  from  the  business  transacted  with  any  one  cus 
tomer.  Where  it  is  desired  to  ascertain  whether  or  not  a  particular  section  of 
the  country  or  a  particular  customer  is  consuming  a  class  of  goods  that  yield  a 
profit  or  not,  a  form  of  this  kind  may  be  used  with  good  effect,  as  it  will  show  the 
profit  not  only  on  the  customer,  but  on  all  of  the  customers  in  that  particular 
locality.  Such  forms  as  are  herein  referred  to  relate,  of  course,  only  to  certain 
cases  and  conditions. 


CHAPTER  XXVIII 

DRAWINGS,    PATTERNS,    AND    EQUIPMENT   RECORDS 

Plant  Cards  (4  forms) — Tool  Records  (2  forms) — Pattern  Record  (1  form) — Drawing  Record 
(1  form) — Estimating  Records  (2  forms) — Contract  and  Price  Records  (3  forms) — Inventory- 
Repair  and  Maintenance  Cost — Tool  Room — Estimates — Section  Cost — Use  of  Price  Curds — 
Value  to  Purchasing  Agent. 


(Form  33  A) 


Class  _ 

Name  .     ...No.    ^Size 

B 
R 

Loc 

uilding 
oom  No 

ition 

No. 

DATE 

ON  HAND 

ADDED 

TOTAL 

REPAIRS 

DEPRECIATION 

NO. 

COST 

NO. 

COST 

COST 

AMOUNT 

5j 

AMOUNT 

•  —  —  

Standard  Size  8X  *  «K 


(Form  3*  A) 


Name                                 No.                 Size                         Loc 

atio 

3    Pu 

Class  

Buildin 
Room  1 

T 

jNo.  

to. 

...From   .                              Cost  $  .  .           Dat( 

rchased 

DATE 

COST 

REPAIRS 

:•    RI     .-.-'-. 

NATURE 

AMOUNT 

t 

AMOUNT 

Standard  Size  8X  x 


210 


(Form  35A) 


No                                                        A.  B.  C. 

CO. 

ARD 

Class...     

Size                                                                       PI  ANT  r 

Buildir 
Room. 

g       _                                   

Locati 
Name 

Description  

BATE 

QUANTITY 

COST  PRICE 

INSTALLATION 

CHARGES 

TOTAL  COST 

- 

< 

I 

Standard  Size  4x6 


(Form  36.V 


No. 

Size  .           -                                                                 Cl 

Locati 
Name 
Descri 

Room 

ption 

DATE 

PURCHASED  FROM 

MATERIAL 

LABOR 

TOTAL  COST 

Standard  Size  4x6 


Form  35  A  &  36  A  Back 


REPAIRS 

DEPRECIATION 

DATE 

DESCRIPTION 

LABOR 

MATERIAL 

TOTAL 

* 

AMOUNT 

il 

DRAWINGS,  PATTERNS,  AND  EQUIPMENT  RECORDS      211 


(Form  37  \)  Front 


WORKMAN'S  TOOL  RECORD 

DESCRIPTION 

SIZE 

DATE  RECEIVED 

CONDITION 

NAME  OF  WORKMAN 

Standard  Size  1x6 


(Form  37  A)  Back 


DESCRIPTION 

SIZE 

DATE  RETURNED 

CONDITION 

STOREKEEPER 

Standard  Size  1 1  6 


(Form  38  A) 


Q 
OC 

DATE 
BROKEN 

NAME  AND  SIZE  OF  BROKEN  ARTICLE 

MAKER'S  NAME 

TOOL 
KEEPER'S 
INITIALS 

0 

O 

H      o 

z 
> 

c 

0) 

0 

-Q 

"5  E 

O    n) 
1-  Z 

This  card  must  be  sent  to  the  Superintendent's  office  every  week. 

Standard  Size  (  x  6 


212 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  39  A) 


o 


PATT    Nn 

DESCRIPTION 

KIND  OF  PATTERN 

No.  ON  GATE 

No.  CORE  BOXES 

WFf-.UT  F»ru 

BIN 

LOCATION 

RHFI  f 

(Form  40  A) 


DRAWINGS  &  PATTERNS      Numbers 

Drawing 
Description  Pattern  N 

<JO. 

0. 

DATE 

ANALYSIS  OF  COSTS 

PENCIL 
SKETCH 

TRAC 

NQ 

INK 

SKETCH 

BLUE 
PRINTS 

PATTERN  1       TOTAL 

Labor 
Time 
Rate 
Amount 
Supplies:- 

% 

TOTAL  COST 

Standard  Size  2X 


Standard  Size_4_x  6 


Estimat 
For 

ESTIMATE  BLANK 

p>  nn                      .  .                , 

No. 
Dat 

e  Submitted 

Departr 

nent 

ESTIMATED  COST 

MATERIAL 

LABOR 

SECTION 

AMOUNT 

ARTICLE 

QUANTITY 

PRICE 

AMOUNT 

OPERATION 

TIME 

RATE 

AMOUNT 

Standard  Size  g)j  z  11 


DRAWINGS,  PATTERNS,  AND  EQUIPMENT  RECORDS      213 


(Form  42  A  1) 


Estinr 
For._ 
Contr 

ESTIMATE  BLANK 

ated  on 

Date  Submitt 
Date  Accepts 
Architect  

Nc 
ed 



d 

actor___     ..          __         ..      ...           _   -     _ 

ESTIMATED  COST 

DISTRIBUTION 

DEPARTMENTS                                    AMOUNT 

MATERIAL 

LABOR 

i  

INDIRECT 

TRANSPORTATION 

INCIDENTALS 

• 

GRAND  TOTAL 

SUMMARY 

OF   ESTIMATE 

DESCRIPTION 

QUANTITY 

PRICE  EACH 

AMOUNT 

TOTAL 

Estimated  Cost: 

Price  Quoted 
Estimated  Profits 
Percentage 

Ma 

de  by    . 

Chec 

:ked  by                                     Approved           

Sup't 

Standard  Size  S%  i  11 


(Form  42  A"  ) 


Eitimato 
For 

ESTIMATE  BLANK                         Date  Subr 

Date  Acc< 
Architect 

nitted                                  No~- 

Contractor 

ESTIMATED  COST  OF  SECTIONS 

1           |          2 

3 

4 

5 

6 

7 

8 

9 

10 



r-  

—  —  —  -— 

-_. 


- 

SUMMARY 

DISTRIBUTION 

NO. 

SECTIONS 

LABOR 

INDIRECT 

TRANSPORTATION 

INCIDENTALS 

1 

10 

Total 

Standard  Size  «M  x  11 


214 


FACTORY    ORGANIZATION    AND    COSTS 


(Form  43  A) 


Name 
Addre 
Term 

CONTRACTS 

_Date  Rec'd  

ss 

Date  Completed 

..Contract  No. 

ARTICLE 

KIND                                                              SIZE 

ORDERS  RECEIVED 

SHIPMENTS 

BALANCE 

DATE 

QUANTITY 

DATE 

QUANTITY                              QUANTITY 

i 

Standard  Size  i  s.  6 


(Form  M  A) 


CURRENT  PRICE    CARD 

Approximate  Quantity 
Article                                                                           used  per  year 

DATE 

VAX  IV 
QUANT 
PRICE 

JM 

TY 

MINIMUM 
QUANTITY 
PRICE 

REMARKS 

,  



Standard  Size  1x6 


(Form 


CURRENT  PRICE  CARD 
Name                                                                                                                        Ledger 

Address                                                                                                                    Salesman 

ARTICLE 

DATE 

PRICE 

DATE 

PRICE 

DATE 

PRICE 

DATE 

PRICE 

Standard  Siza  i  *  6 


DRAWINGS,  PATTERNS,  AND  EQUIPMENT  RECORDS       215 

DURING  the  last  few  years  the  attention  of  the  manufacturer  has  been  called 
to  the  importance  of  having  an  appraisal  of  his  plant  made,  and  a  detailed  record 
of  the  equipment  and  of  its  value  prepared.  For  this  reason — as  a  matter  such 
as  this  necessarily  relates  to  factory  organization — designs  of  various  kinds  are 
presented,  showing  how  a  running  inventory  may  be  established  in  connection 
with  the  machinery  and  tools,  as  well  as  with  patterns,  drawings,  and  similar 
property.  These  designs  are  so  ruled  as  to  indicate  the  amount  of  the  repairs 
relating  to  any  particular  machine  or  class  of  tools  for  any  period.  This  informa 
tion  will  be  especially  valuable  where  old  machinery  is  in  use,  which  is  sometimes 
more  expensive  to  maintain  than  might  appear;  and  although  general  accounts 
are  kept  usually  showing  the  total  repairs  to  the  entire  plant,  the  information 
obtained  by  the  records  outlined  is  more  suitable  for  making  changes  or  deter 
mining  on  the  installation  of  new  machines  than  a  general  record  would  be.  Fur 
thermore,  the  rate  of  depreciation  can  also  be  shown,  which  should  be  based  on 
the  life  of  the  machine  in  connection  with  the  average  operating  time. 

Where  a  regular  tool  room  forms  a  part  of  the  organization,  tool  records  should 
be  kept  in  about  the  same  manner  that  stock  records  are  kept;  and  these  tools 
should  be  so  classified  and  arranged — and  not  only  in  the  records,  but  also  in  the 
tool  room — as  to  show  the  quantity  of  tools  on  hand  available  for  each  particu 
lar  class  of  machine.  The  bins  or  racks  in  the  tool  room  should  also  indicate  the 
condition  of  repair  of  the  tool,  and  tools  that  are  not  in  repair  or  in  perfect  con 
dition  should  be  kept  in  separate  bins  apart  and  distinct  from  the  tools  recently 
sharpened  or  repaired.  This  can  only  be  done  by  systematizing  the  tool  room 
proper,  and  by  inaugurating  a  tool  room  system,  simple  in  design  but  neverthe 
less  effective  if  properly  operated. 

ESTIMATE    BLANKS 

These  forms  are  submitted  principally  because  estimates  are  frequently  pre 
pared,  if  we  are  to  judge  by  the  forms  used,  or  rather  the  lack  of  forms,  with  very 
little  care.  The  first  form  shown  is  for  the  purpose  of  making  out  an  estimate 
for  work  to  be  done  in  a  particular  department,  showing  prime  cost  only — that  is, 
material  and  labor,  but  dividing  the  order  into  sections.  This  form,  after  being 
properly  filled  out,  is  transferred  to  the  next  form  shown,  and  the  total  for  the 
department  entered  in  the  amount  column  and  distributed  according  to  material 
and  labor.  The  same  information  is  entered  on  the  next  sheet,  under  the  caption 
"Estimated  Cost  of  Sections,"  according  to  the  section  number.  The  section 
costs  are  re-analyzed  in  the  lower  portion  of  the  sheet  under  the  caption  "Sum 
mary,"  according  to  Material  and  Labor.  The  same  process  is  carried  out 


216 

throughout  all  the  departments,  until  the  total  estimated  cost  of  the  order  is 
ascertained  according  to  departments  and  divided  according  to  labor  and  mate 
rial  in  each  department.  From  this  it  can  be  seen  that  any  omissions  in  the  esti 
mate  would  necessarily  be  brought  to  light. 

The  intention  of  the  form  is  to  prevent  mistakes;  and  if  this  or  a  similar 
design  is  used,  it  is  reasonable  to  assume  that  this  result  will  be  accomplished. 
Any  other  expenses  or  charges  may  be  added.  Columns  are  provided  for  dis 
tributing  the  indirect  expenses  departmentally  instead  of  in  total,  as  this  will 
produce  a  more  accurate  estimate. 

A  design  of  this  kind  is  intended  to  be  used  where  the  orders  are  particularly 
contracts;  but  the  design  is  presented  merely  for  illustration.  A  form  somewhat 
similar  ma}'  be  employed  whether  the  estimates  are  for  small  orders  or  large 
contracts,  and  some  mistakes  otherwise  possible  might  be  prevented  by  its  use. 

CONTRACTS  AND  PRICE  RECORDS 

These  forms  are  merely  submitted  as  sundry  organization  forms,  and  are  for 
the  purpose  of  keeping  track  of  quotations  furnished  to  the  purchasing  depart 
ment  for  various  materials  and  supplies  used  in  the  manufacturing  and  other 
departments.  In  one  of  the  Current  Price  records,  a  separate  card  is  used  for 
each  article  that  quotations  are  received  on,  no  matter  how  many  different  firms 
or  companies  furnish  quotations  on  this  particular  article.  One  of  the  other 
forms  provides  a  means  of  recording  quotations  on  several  articles  received  from 
the  same  concern,  and  in  this  case  a  separate  form  is,  of  course,  used  for  each  indi 
vidual  or  company  from  whom  goods  are  purchased  continuously.  The  other 
form  is  usually  used  in  cases  where  quotations  are  received  from  various  com 
panies  from  whom  goods  are  not  regularly  purchased,  as  a  check  on  the  other 
class  of  quotations.  Both  forms  are  useful  and  will  prove  of  advantage  to  the 
purchasing  agent. 

The  other  forms,  relating  to  contracts,  refer  to  the  sales  department  and  in  a 
measure  have  the  same  bearing  or  relation  to  this  department  that  the  current 
price  cards  have  to  the  purchasing  department,  these  cards  being  used  for  record 
ing  quotations  to  customers  and  for  keeping  track  of  balance  due  on  contracts 
sold  at  a  stated  price  but  subject  to  future  delivery.  The  design  is  general,  and 
may  be  provided  with  special  columns  to  meet  any  particular  conditions  called  for. 


CHAPTER  XXIX 

INVENTORY    OF   MATERIAL    FORMS 
Five  Different  Designs,  showing  Use  in  Relation  to  Stock  Systems. 


INVENTORY   OF    MATERIAL 


Article.-.  location.. 


Book  Inventory.. 

Actual  Count 

Difference 

Cause- 


._$_. 
_.$_. 


Date  taken By- 


standard  Size  5X  X  7 


(Form  45  B) 


INVENTORY  OF  MATERIAL 


Department                                                                         Taken  19.  

ARTICLE 

LAST 
OPERATION 

PRODUCTION 
ORDER 
NO. 

LOCATION 

ACTUAL  INVENTORY 

STOCK  RECEIVED 

SMRI',K4uE  OR 
OVERRUN 

COUNT 

CR  WT. 

PRICE 

AMOUNT 

COUNT 
OB  WT. 

PRICE 

AMOUNT 

COUNT 
OR  WT. 

AMOUNT 

Standard  Siie  8X  xll 


218 


FACTORY    ORGANIZATION   AND    COSTS 


(Forni46.A) 


INVENTORY  SHEET 

ARTICLE 

QUANTITY 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

Standard  Size  8  x  11 


(Form  46  B) 


INVENTORY  SHEET 

Department-- 

ARTICLE 

QUANTITY 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

OPERATION  N0.1 

OPERATION  N0.2 

OPERATION  N0.3 

OPERATION  N0.1 

OPERATION  N0.2 

OPERATION  N0.3 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

Standard  Size  9  x  U 


(Forra.i7A). 


She 
Call 
Ent 

Inv 
stNo..  p.     . 

entory 

190                Fo 

:o 

Pr  ced  I 

Entered 
Examin 

Y 

,  ,                                                            Department  -  ... 
ed  by  .  n.at.   „ 

b) 



sred  by  ... 

jd  by                  __  

CHECK 

QUANTITY 

DESCRIPTION 

OPERATION 

NET-PRICE 

PRICE 
REGULAR 

EXTENSIONS 

NET  PRICE 

PRICE  REGULAR 

Amount  Forward 

Standard  Size  9)4  x  11 


INVENTORY   OF   MATERIAL   FORMS  219 

\ 

INASMUCH  as  the  question  of  inventory  taking  is  one  that  confronts  the  manu 
facturer  at  least  once  a  year,  it  is  deemed  advisable  to  discuss  this  subject  some 
what  at  length,  and  to  present  the  different  forms  that  experience  has  proven  to 
be  the  most  practical  for  use  under  different  conditions. 

There  are  two  principal  conditions  to  be  considered  in  taking  an  inventory: 
one  is  where  a  stock  system  is  in  use  and  the  actual  inventory  is  to  be  used  in 
verifying  the  stock  records;  the  other  is  where  no  stock  records  are  kept  and 
where  it  is  not  intended  to  install  any. 

The  first  two  forms  shown  treat  with  the  first  condition,  and  the  designs  differ 
only  in  that  one  article  is  entered  on  each  form,  whereas  in  the  other  case  several 
articles  in  the  same  department  are  entered  on  the  same  form.  In  effect,  how 
ever,  these  forms  are  substantially  the  same.  The  object  of  both  is  to  show  the 
actual  inventory  and  then  to  enter  on  these  forms  the  theoretical  inventory  as 
shown  by  the  stock  records,  in  order  that  any  difference  between  the  two  inven 
tories  may  be  shown,  the  cause  therefor  ascertained,  and  the  stock  records  adjusted 
so  as  to  show  the  true  condition  of  the  stock  at  the  time  the  inventories  were  taken. 

Where  it  is  not  desired  to  use  the  inventory  in  connection  with  the  stock 
system,  the  form  last  shown  may  be  used  instead  of  the  form  first  presented,  as 
all  that  will  be  necessary  in  a  case  of  this  kind  is  to  take  the  inventory  in  the 
usual  way  according  to  departments,  and  using  a  larger  sheet  than  in  the  former 
case. 

No  matter  what  plan  is  followed,  care  should  be  taken  in  listing  goods  in 
process  of  manufacture  so  as  to  show  the  last  operation,  otherwise  inaccurate  re 
sults  in  pricing  the  inventory  will  be  almost  certain  to  occur.  Considerable  diffi 
culty  will  be  experienced  in  making  extensions  and  entering  prices  where  this  is 
not  done.  Time  will  be  saved  if  the  inventory  is  originally  taken  with  the  great 
est  care  and  the  meaning  of  all  the  articles  listed  in  the  inventory  sheet  made 
clear.  This  result  can  be  accomplished  by  having  official-looking  inventory 
sheets  which  will  command  respect  from  those  taking  the  inventory,  and  thus 
insure  better  results  than  can  be  expected  where  ordinary  blank  paper  of  dif 
ferent  sizes  is  permitted  to  be  used. 

Where  it  is  desired  to  install  a  stock  system  and  cost  system  from  an  inventory 
taken  at  any  particular  period,  the  inventory  should  be  divided  into  three  prin 
cipal  sections — namely,  raw  material,  goods  in  process  of  manufacture,  and  fin 
ished  product.  The  articles  listed  in  the  first  class  should  be  transferred  to  stock 
cards  or  stock  sheets  for  raw  material,  as  is  shown  in  the  chapter  describing  forms 
of  this  character.  The  amount  and  the  cost  should  be  entered  according  to  article 
in  the  column  headed  " Balance,"  a  separate  stock  card  being  used  in  most  cases 
for  each  article. 


220  FACTORY    ORGANIZATION   AND    COSTS 

The  articles  shown  in  the  subdivision  of  the  inventory  for  goods  in  process 
of  manufacture  should  then  be  transferred  to  a  cost  sheet  for  each  order  number, 
article,  or  process,  and  the  quantity  and  cost  entered  as  well  as  the  last  operation 
on  the  article,  as  is  further  explained  in  the  chapter  relating  to  Cost  Systems. 

All  of  the  finished  product  should  likewise  be  transferred  to  the  stock  records 
for  finished  product,  and  the  quantity  and  cost  entered.  Designs  of  this  descrip 
tion  will  be  found  in  a  chapter  on  that  subject. 

As  to  the  method  of  continuing  these  records  after  the  inventory  has  been 
transferred,  the  reader  is  referred  to  the  several  chapters  on  cost  and  stock  sys 
tems,  as  well  as  various  forms,  all  different  in  design,  treating  with  this  subject 
in  all  its  details. 


CHAPTER  XXX 

SALES    REPORTS   AND    ANALYSIS 

Salesmen's  Reports  (1  form) — Salesmen's  Costs  (1  form) — Sales  and  Selling  Costs  (1  form) — Orders 
and  Sales  (1  form) — Salesmen's  Record,  showing  Sales  by  Territory,  Costs,  Selling  Expenses 
and  Profits — Classification  Cost  of  Orders — Sales  and  Selling  Costs. 


SALESMANS'  REPORT 
Name                    .                          __    

No. 

Date-. 

DATE 

TOWN 

STATE 

CALLS 

RESULT 

Approved:-    -                   Correct:     —                  -  -       -    -  _        -     .„ 

Standard  Size  8ft  *  H 


222 


FACTORY   ORGANIZATION   AND    COSTS 


Form  Ho.  49  A 


SALESMEN'S     COSTS. 
Salesman               !  -  .Territory.  

FOE  THE  YEAE  19  

Sales 

Gross  Profit 

Selling    Costs 

Net  Profit 

Amount 

Coot 

Araoun 

CuramisB 

• 

Traveling 

Total 

Amount 

January 

February 

March 

April 

May 

June 

July 

AuKuet 

September 

October 

November 

December 

Total  for  the  year 

FOE  THE  YEAE  19  

January 

February 

March 

April 

May 

June 

July 

August 

September 

October 

November 

December 

Total  for  the  year 

Standard  Size  13  s  13 


(Form  50  A) 


STATEMENT  OF  SALES  AND  SELLING  COSTS 

Date 

d                                        19 

SALES 

SELLING  COSTS 

NET  PROFIT 

SOURCE 

AMOUNT 

COST              G 

ROSS  PROFIT 

% 

SALARIES  OR 
COMMISSIONS 

EXPENSES 

TOTAL 

% 

AMOUNT 

% 

Approved:                                                                                                        Correct: 

Standard  Size  10  X  12 


SALKS    UKI'OU'TS    AND    ANALYSIS 


223 


(Form  51  A) 

Factory  1 

Article  . 

'rice 

ORDERS  AND  SALES 

Sheet  No. 

ORDE  RS 

SALES 

i  - 

•       ;        :.     .     , 

i  : 

ORDERS 

••••: 

RECEIVED 

CANCELLED 

DATE 

NUMBER 

QUANTITY 

PRICE  |l 

AV      JNT            RAT! 

A 

1  —  | 

TTT 

4—  - 

Standard  Size  11  x  13>i 


ALTHOUGH  the  leading  manufacturers,  as  well  as  those  interested  in  other 
lines  of  business,  have  given  more  attention  to  records  of  this  character  than  to 
the  subject  of  cost  keeping,  and  are  for  this  reason  better  equipped  in  this 
respect,  it  is  felt,  nevertheless,  that  some  of  the  following  forms  will  be  new 
to  most  of  them  because  of  the  peculiar  nature  of  the  information  furnished 
and  the  accuracy  of  all  the  statements  dealing  with  salesmen's  costs  and 
profits. 

The  design  setting  forth  the  result  of  salesmen's  efforts  in  each  particular 
territory  is  so  arranged  as  to  indicate  not  only  the  exact  amount  of  the  sales 
each  month,  but  also  the  cost  of  the  product  sold  and  the  gross  profit  monthly. 
From  this  may  be  deducted  salaries  and  commission,  together  with  travelling 
expenses,  thus  showing  the  net  profit  after  charging  such  expenses  as  were  actually 
incurred.  These  figures  differ  from  the  ordinary  statistics  compiled  by  sales 
managers  in  that  they  are  all  taken  from  the  bookkeeping  department,  the  cost 
of  goods  sold  together  with  the  amount  of  the  sales  is  obtained  directly  from  the 
Sales  Records,  and  the  selling  costs  are  taken  from  the  Salesmen's  Records.  The 
results  shown  by  a  form  of  this  kind  may  be  summarized,  entering  all  sales 
men's  accounts  on  one  form  and  showing  the  results  obtained  by  each  for  the 
month,  which  information  may  be  used  to  advantage  in  the  adjustment  of 
salaries. 

One  of  the  other  forms  presents  a  somewhat  different  record  than  those  usu 
ally  kept  in  a  sales  department,  in  that  it  shows  the  orders  received,  sales,  and 
unfilled  orders  according  to  article,  together  with  the  selling  price  and  cost  price 
of  the  articles  sold.  This  will  enable  the  sales  manager  to  ascertain  which  sales 
man  is  getting  proper  prices  for  the  articles  sold  and  which  one  is  not.  As  the  form 


224  FACTORY    ORGANIZATION   AND    COSTS 

i 

indicates,  each  salesman's  orders  should  be  kept  in  a  separate  section,  so  as  to 
follow  up  the  unfilled  orders  of  each  salesman  to  facilitate  deliveries  and  to  aid 
in  passing  on  credits. 

It  might  be  well  to  add  that  any  porf:on  of  these  records  may  be  included  in 
the  monthly  reports  to  the  board  of  directors  or  the  management. 


CHAPTER  XXXI 

MONTHLY   REPORT   RELATIVE   TO    FINANCIAL   STATUS   AND   EARNINGS 

Production  and  Costs  (1  form) — Statement  of  Profit  and  Loss  (2  forms) — Comparative  Statement 
of  Profit  and  Loss  (1  form) — Comparative  Balance  Sheet  (2  forms) — Classification  of  Financial 
Statements — Monthly  Earnings. 


STATEMENT  OF  PRODUCTION  AND  COSTS 
Date^    __.      _  _19  = 

;  PRODUCTION 

INVENTORY 
BEGINNING  OF  PERIOD 

PRODUCTION 
CURRENT  MONTH 

COST  OF  SALES 
CURRENT    MONTH 

INVENTORY 
END  OF  MONTH 

;     ANTITY 

BATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

FROM  ALL  SOURCES 

Standard  Size  10  T  H 


2£ 


MONTHLY    REPORT 


227 


-o 

4) 
rt 
0 

TOTAL 

t 

uj-> 
Q 

ix 

Q 

£» 

Q 

<n 

to 

3 

c 
z 

^ 

0 

< 
1- 
u. 

O 

tr 

I-" 

Q-  ul 

UJ 

Q 

D. 

u. 
0 

l- 
z 

So 

Q 

TATEME 

Sj  O 
Q 

(0 

Q-  m 

UJ 

Q 

. 

o.< 

UJ^ 

Q 

ANALYSIS 

^             •*.       •*.     v,  ~ 

S        T> 
0         C     „ 

Q.        <°      S 
O         »     3 

?                              I         I? 

*        **                                                 2       ^    c 

««2s          i     3     i    k  ! 

<n      "o       °-        Sb«c        ,°         S^lU 

•Sillll^t* 

^OZlxn'O                               d>        — 

0}    o    o    d  £    3            z< 

i 

i 
| 

i 

228 


FACTORY    ORGANIZATION    AND    COSTS 


z     £> 


e  e 


E  e 


j    —  j: 

111 


if 

3  =3,; 


S    I 

Illl 
till 


230 


FACTORY    ORGANIZATION    AND    COSTS 


(Form  56  At) 


ASSETS 

For  the  Year  Ending,  .  .     19 

ACCOUNTS         ^'Hs0  1     JAN            FEB>         MARl         APR<          MAY         JU 

NE        JULY         AUG.        SEPT.        OCT.         NOV.         DEC. 

I  Property 

T 

_Real  Eitmte  «nd  BuUd'gs                 _L                                                J_ 

Michinerj  >nd  Tooll 

BMtMJ! 

OMo. 

Deferred  Charges:-)  .           -.  --_  -.     .  .        _-_._-      .  .1  

Uttfj 

Selling  E.pn,,,,                                                                                                                                                                 ,    .   

Current  Assets' 

<>.h 

Aooounta  H«oelEa^l« 

•J[j,tw  R^«.lr,V,l,                                               I 

Deficit- 

Standard  Size  1JH  x  17 
(Form  56  AS 


LIABILITIES 

For  tlie  Year  Ending                                       19   - 

ACCOUNTS          ^Hfi0       JAN>            FEBl          MAB'          APR>          MAY     1     J 

JNE    j    JULY         AUG.        SEPT.         OCT.         NOV.          DEC. 

Capital  Stock! 

Current  Liabilities' 

Divjde.cds  Payable: 

Reserve  Fuod.s; 

....      >t    preceding  Month 

- 

•*p 

Standard  Size  9^  x  17 


MONTHLY    REPORT  231 

THE  nature  and  size  of  the  business,  together  with  the  wishes  of  the  manage 
ment  and  those  financially  interested  in  the  earnings  and  financial  status  of  an 
enterprise,  will  necessarily  regulate  the  character  of  reports  to  be  furnished,  and 
for  this  reason  only  such  forms  as  are  more  or  less  standard  and  adapted  to  prac 
tically  any  line  of  business  are  presented  for  consideration. 

Several  different  forms,  showing  approved  methods  of  indicating  earnings 
monthly  in  analytical  form,  as  well  as  comparative  statements  and  cumulative 
reports,  are  all  presented.  To  any  of  these,  extra  columns  may  be  added  to  suit 
the  reader's  ideas  as  to  what  information  he  wants.  In  the  case  of  statements 
showing  the  assets  and  the  liabilities  of  an  enterprise,  the  same  remarks  also 
apply. 

The  statement  of  production  and  costs  is  calculated  to  be  used  where  the 
product  manufactured  does  not  involve  a  great  number  of  articles,  but  it  may 
also  be  used  to  show  the  total  articles  of  any  particular  class  manufactured  dur 
ing  the  month,  together  with  the  condition  of  the  inventory  at  the  beginning 
and  ending  of  the  period. 

The  statement  of  factory  expenditures,  which  appears  in  another  chapter, 
setting  forth  the  expenditures  of  the  several  departments  of  the  factory  as  well 
as  the  indirect  expenses,  may  also  be  incorporated  in  the  monthly  report  if  pre 
ferred. 

As  to  the  method  of  preparing  these  statements,  it  is  enough  to  say  at  this  point 
that  they  are  taken  from  the  General  Ledger — with  the  exception  of  the  statement 
of  production  and  costs,  which  is  taken  from  the  stock  records ;  and  the  statement 
of  factory  expenditures,  which  in  some  cases  might  be  taken  from  the  Operating 
Ledger  or  Distribution  Book. 

For  a  full  description  of  the  methods  of  preparing  these  statements,  the  reader 
is  referred  to  the  several  systems  described  in  this  work. 


CHAPTER  XXXII 

ESTIMATED   COST   SYSTEM   BASED    ON   AN   ANNUAL  VERIFICATION    OF   MATERIAL, 

LABOR,    AND    INDIRECT   EXPENSES 

Simplest  Condition — Proof  at  Inventory  Periods — Bookkeeping  Forms  not  Affected — Beginning 
Inventory — Schedule  of  Estimated  Costs — Sales  Analysis — Complete  Plan  of  Verification. 

IN  outlining  a  system  of  verifying  estimated  costs  at  inventory  periods,  and 
showing  in  which  element  of  the  cost  of  production  the  estimated  costs  are  at 
fault,  the  simplest  condition  is  presented  to  the  reader  in  this  chapter,  because 
it  not  only  admits  of  a  clear  explanation  to  those  not  thoroughly  conversant  with 
bookkeeping  and  accounts  generally,  but  because  it  also  applies  and  would  be  all 
that  is  necessary  for  a  small  business,  in  which  the  operations  are  few  and  the 
factory  conditions  simple. 

It  is  not  intended  in  this  chapter  to  show  the  manufacturer  how  to  figure  his 
costs,  but  only  to  help  him  in  determining  whether  or  not  his  estimates  are  as 
accurate  as  he  supposes,  or  as  they  should  be;  and,  if  not,  where  the  principal 
difference  or  errors  have  occurred.  If  these  instructions  to  be  given  are  carried 
out,  it  will  be  possible  to  determine  to  the  satisfaction  of  any  one  whether  the 
material,  the  labor,  or  the  expenses  are  correctly  stated  in  the  estimates  of  cost 
which  have  been  used.  This  information  will  not  be  obtainable  until  the  inven 
tory  period,  but  at  that  time  an  absolute  check  can  be  established  on  all  of  the 
elements  entering  into  the  cost  of  production,  and  any  inaccuracies  in  any  of 
these  elements  of  cost  will  be  shown  and  determined  to  a  certainty.  This  will  in 
no  way  affect  the  bookkeeping.  These  suggestions  are  merely  along  the  line  of 
helping  the  manufacturer  to  determine  when  his  books  are  closed  whether  or  not 
he  would  be  justified  in  installing  a  cost  system  in  his  particular  plant.  The 
results  shown  by  this  verification  of  estimated  costs  will  leave  no  room  in  his 
mind  for  doubt  as  to  what  course  he  should  pursue. 

INVENTORY   SHEET 

(Form  46  A) 

In  inaugurating  a  system  of  this  description,  calculated  to  be  used  as  a  means 
of  verifying  cost  calculations,  the  first  step  is  to  take  an  inventory  of  the  plant, 
and  to  divide  this  inventory  according  to  the  three  elements  entering  into  the 
cost  of  production — namely,  material,  labor,  and  indirect  expenses.  These  items 


ESTIMATED    COST    SYSTEM 


233 


(Form 46  A) 


INVENTORY  SHEET 

ARTICLE 

QUANTITY 

MATERIAL 

LA  BUR 

INDIHCCT                      TOTAL 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

Standard  Size  8  x  11 


should  be  entered  on  the  Inventory  Sheet  for  each  article  appearing  in  the  Inven 
tory  at  the  time  the  inventory  is  priced,  and  this  price  should  represent  the  same 
estimated  cost  price  which  it  is  desired  to  verify.  The  method  of  doing  this  is 
simple.  All  that  is  necessary  is  to  divide  the  elements  entering  into  the  total 
cost  of  the  article  into  the  three  elements  of  cost.  This  is  done  by  having  a  sched 
ule  of  the  estimated  cost  at  hand  which  will,  of  course,  show  these  elements. 

As  an  illustration,  supposing  that  a  certain  article  costs  $1.50,  according  to 
the  schedule  of  estimated  costs,  which  cost  consists  of  75  cents  for  material,  50 
cents  for  labor,  and  25  cents  for  indirect  expenses,  and  that  four  of  these  articles 
are  shown  in  the  inventory.  The  entry  on  this  Inventory  Sheet  would  be  $3.00 
for  material,  $2.00  for  labor,  $1.00  for  indirect  expenses,  and  $6.00  for  the  total 
cost  of  the  articles.  After  all  of  the  articles  have  been  priced  in  this  manner 
and  the  total  ascertained,  the  inventory  should  be  re-entered  in  the  Ledger  to  the 
debit  of  each  of  these  three  accounts — that  is,  supposing  the  total  inventory 
amounted  to  $10,000,  of  which  $6,000  was  represented  in  the  first  cost  of  material, 
£3,000  in  labor  and  $1,000  in  indirect  expenses,  these  amounts  are  the  ones  which 
should  be  entered  in  the  Ledger  to  the  debit  of  these  various  accounts. 


SCHEDULE    OF    ESTIMATED    COSTS 
(Form   13  T) 

A  form  of  almost  any  design  similar  in  character  to  this  one  can  be  used  as  a 
record  of  the  estimated  costs  for  all  of  the  articles  manufactured.  If  desired,  it 
may  be  in  the  form  of  a  card  with  columns  provided  for  each  month,  in  order  to 
record  therein  changes  in  either  material  cost  or  labor  cost,  due  to  variations  in 
these  elements;  but  the  same  principle  and  the  same  information  should  appear 
in  order  to  carry  out  the  plan  herein  outlined. 


234 


(Form  1ST) 


SCHEDULE  OF  ESTIMATED  COSTS 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

(  _^-^ 

^___ 

—  J 

—  -—•-  • 



_^^ 

Standard  Size 


The  prices  shown  in  this  schedule  are  the  ones  which  should  be  used  in  pricing 
the  inventory,  not  only  at  the  beginning  of  the  period,  but  also  at  the  end  of  the 
period;  and  these  same  prices  are  used  in  connection  with  entering  the  cost  price 
on  the  Analysis  of  Cost  of  Sales  next  explained.  For  this  reason,  whatever  form 
is  used  it  should  be  convenient  and  specific  as  to  design. 


(Form  19  F) 


ANALYSIS  OF  COST  OF  SALES 

- 

ARTICLE 

QUANTITY 
SOLO 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

Standard-Size  8>i  i 

ANALYSIS    OF   COST   OF   SALES 

(Form  19  F) 

Since  the  quantity  and  kind  of  goods  sold  constitute  a  prominent  part  of  this 
plan  of  verification  of  estimated  costs,  it  will  be  necessary  to  prepare  a  statement 
similar  to  the  one  illustrated  in  this  chapter,  showing  all  of  the  articles  sold  be 
tween  the  time  the  inventory  was  first  taken  according  to  this  system  and  the 
time  that  the  inventory  was  taken  at  the  close  of  the  period.  An  inventory  can 
of  course  be  taken  at  any  time  during  the  year  when  it  is  desired  to  verify  these 
estimated  costs.  After  this  schedule  has  been  prepared  and  the  total  quantity  of 


ESTIMATED    COST    SYSTEM  235 

each  article  sold  ascertained,  the  cost  price  of  the  three  elements  shown  in  the 
schedule  of  estimated  costs  should  be  entered  in  this  schedule  in  the  three  col 
umns  provided  for  these  three  elements — namely,  material,  labor,  and  indirect 
expense — and  the  total  costs  of  each  one  of  these  elements  extended  in  the  amount 
columns  for  the  total  quantity  of  each  article  sold.  The  total  of  these  three 
elements  should  then  be  entered  in  the  total  cost  column;  after  which  all  of  these 
columns,  including  the  total  cost  column,  should  be  added  and  the  total  ascer 
tained. 

PLAN    OF   VERIFICATION 

Since  the  total  of  the  three  elements  entering  into  the  cost  of  production,  as 
shown  in  the  inventory  at  the  time  this  system  was  started,  have  been  charged 
against  these  three  elements  in  the  Ledger — that  is,  to  the  material  account,  the 
labor  account,  and  the  indirect  expense  account,  respectively;  and  as  the  purchases 
of  materials,  exclusive  of  supplies,  in  the  nature  of  expense  have  been  charged 
against  the  material  account  during  the  period  intervening  between  the  begin 
ning  inventory  and  the  ending  inventory;  and  as  the  same  is  true  in  the  case  of 
the  labor  account  and  the  indirect  expense  account,  which  would  also  be  charged 
with  all  of  the  expenditures  relating  to  those  accounts  during  the  period  men 
tioned — it  is  clear  that,  if  these  accounts  are  credited  with  the  inventory  at  the 
end  of  the  period  according  to  the  same  classification,  the  difference  between  the 
two  sides  of  the  account  will  show  the  actual  cost  of  material,  labor,  and  indirect 
expenses  consumed  and  expended  in  the  manufacture  of  goods  actually  sold. 
These  same  items,  at  the  estimated  cost,  are  shown  by  the  Analysis  of  Cost  of 
Sales. 

Consequently,  if  the  estimates  are  correct,  the  total  amount  shown  for  mate 
rial,  labor,  and  indirect  expenses  in  this  Analysis  of  Cost  of  Sales  should  agree 
with  the  balance  of  each  of  these  accounts  in  the  Ledger.  If  the  ledger  balances 
exceed,  in  any  of  these  accounts,  the  amount  shown  in  the  Analysis  of  Cost  of 
Sales  for  the  same  account,  the  difference  will  mean  that  the  estimated  cost  fig 
ures  are  too  low  by  exactly  the  amount  of  this  difference.  On  the  other  hand, 
if  the  reverse  is  the  case,  it  will  mean  that  the  estimated  costs  are  higher  than 
the  actual  costs.  The  manufacturer  must  judge  for  himself  according  to  the 
result,  considered  in  connection  with  trade  conditions,  which  is  the  most  detri 
mental  to  his  business. 

In  charging  labor  to  the  labor  account,  it  should  be  kept  in  mind  that  this 
term  means,  in  this  instance,  such  charges  relating  to  manufacture  as  are  supposed 
to  be  included  as  labor  in  the  estimates  of  costs.  Likewise,  in  classifying  or  charg 
ing  expenses  to  the  indirect  expense  account  it  should  be  remembered  that  this 


236 

account  must  include  indirect  or  general  labor  not  charged  to  the  labor  account 
or  included  in  the  estimates  of  cost  as  labor,  as  well  as  such  supplies  as  are  not 
properly  chargeable  to  the  material  account  and  that  are  not  therefore  included 
in  the  estimates  of  material  costs.  The  term  indirect  expense  in  this  instance 
means  all  expenses  relating  to  manufacturing  only,  and  covers  all  items  that  are 
included  in  the  amount  indicated  or  used  in  making  estimates  of  costs.  Several 
expense  accounts,  such  as  rent,  insurance,  indirect  labor,  supplies,  and  all  other 
items  of  this  nature,  may  be  kept  in  the  Ledger,  and  these  accounts  transferred 
when  the  books  are  closed  to  the  indirect  expense  account  proper,  so  as  to  show 
the  total  for  purposes  of  verification. 

In  the  event  that  it  is  desired  to  incorporate  or  record  the  verification  figures 
in  the  Ledger,  the  entry  would  be  as  follows:  Credit  these  accounts — that  is,  the 
material,  labor,  and  indirect  expense  accounts,  respectively — with  the  total  cost 
of  all  of  the  amounts  shown  in  the  Analysis  of  Cost  of  Sales;  and  in  the  same 
entry  charge  the  total  of  these  three  amounts  to  the  sales  account,  which  account 
will  then  show  the  gross  profit,  based  on  the  estimated  cost  calculations.  After 
this  has  been  done,  the  three  accounts  mentioned  will  show  the  theoretical  inven 
tory  in  each  of  these  accounts,  based  on  the  estimated  cost. 

These  balances  should  then  be  compared  with  the  actual  inventory  showing 
the  total  material,  labor,  and  indirect  expenses,  as  per  the  ending  inventory. 
If  the  theoretical  inventory  exceeds  the  actual,  the  difference  should  be  credited 
to  these  accounts  and  the  total  amount  charged  to  the  sales  account,  which  ac 
count  will  then  show  the  actual  gross  profit  instead  of  the  estimated  gross  profit. 
If  the  reverse  is  the  case,  the  entry  would  be  reversed  and  the  result  would  mean 
an  extra  gross  profit.  Where  the  manufacturer  feels  sufficient  confidence  in  his 
estimates  of  costs,  and  desires  to  have  his  bookkeeper  prepare  a  monthly  state 
ment  showing  the  profits  based  on  these  estimates,  these  entries  may  be  made 
monthly  instead  of  at  inventory  periods,  and  any  differences  in  the  results  shown 
adjusted  at  the  end  of  the  year. 


CHAPTER  XXXIII 


ESTIMATED    COST   SYSTEM  BASED   ON  AN  ANNUAL  VERIFICATION   OF  DEPARTMENTAL 
CHARGES    FOR  MATERIAL,    LABOR,    AND   INDIRECT   EXPENSES 

Dividing  the  Elements  of  Estimated  Costs — Conditions  under  Which  the  Best  Results  are  Obtained 
— Inventory  Record — Schedule  of  Estimated  Costs — Sales  Analysis — Purchase  Journal — Pay 
Roll — Complete  Explanation  of  Plan — Relation  to  Ledger  and  Postings — Gross  Profit  Explained. 

THE  distinctive  features  of  this  plan  of  verifying  estimated  costs  are,  that  the 
first  two  elements  of  cost  described  in  the  preceding  system  are  subdivided  and 
so  analyzed  as  to  show  more  clearly  in  what  respect  the  costs  are  inaccurate 
by  indicating  in  which  class  of  material  the  cost  calculations  have  been  most 
inaccurate,  and  in  which  department  the  labor  has  been  most  incorrectly  esti 
mated.  The  indirect  expenses  will  be  verified  according  to  this  plan  in  the  same 
manner  as  has  already  been  explained  in  the  system  immediately  preceding. 


(Form  46  B) 


INVENTORY  SHEET 

Department 

ARTICLE 

QUANTITY 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

OPERATION  N0.1 

OPERATION  N0.2 

OPERATION  N0.3 

OPERATION  N0.1 

OPERATION  NO.  2 

OPERATION  N0.3 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATB 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

'i 

Standard  Size  9  x  U 


INVENTORY   SHEET 
(Form  46  B) 

For  the  guidance  of  those  who  have  read  the  preceding  system,  this  form  may 
be  compared  with  the  form  therein  used.  It  is  different  only  in  that  columns  are 
provided  for  subdividing  the  general  classes  of  material  entering  into  the  cost  of 
production  instead  of  using  one  column  for  that  purpose.  The  same  remarks 
are  true  in  the  case  of  labor,  which  in  this  form  is  divided  into  departments, 
whereas  only  the  total  appears  in  the  other  design. 


238 


FACTORY    ORGANIZATION   AND    COSTS 


The  manner  of  taking  the  inventory  and  of  filling  out  the  columns  is  the  same 
in  this  system  as  in  the  other,  and  this  method  should  be  studied  and  read  in  con 
nection  with  that  system.  Consequently  a  detailed  description  of  this  feature  is 
here  omitted. 

After  the  total  amount  of  the  entire  inventory  has  been  ascertained,  separate 
accounts  should  be  opened  in  the  Ledger  with  each  class  of  material  and  the  labor 
in  each  department,  as  well  as  a  separate  account  for  indirect  expenses.  The 
totals  of  this  inventory  should  be  entered  in  each  of  these  accounts  in  order  that 
they  may  be  opened  in  such  a  way  as  to  provide  for  verifying  each  of  them  when 
an  actual  inventory  is  taken. 


( Form  13  U ) 


SCHEDULE  OF  ESTIMATED  COSTS 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

NO.   1 

NO.  2 

NO.   3 

NO.   1 

NO.   2 

NO.   3 

r~T 

Standard  Size  7  z  7K 

SCHEDULE    OF   ESTIMATED    COSTS 
(Form  13  U) 

The  only  difference  in  this  schedule  and  in  the  one  described  in  the  preceding 
system  is  that  separate  columns  are  provided,  as  in  the  case  of  the  inventory,  for 
classifying  both  the  material  and  the  labor.  This  classification  of  material  and 
labor  should  be  identical  in  this  form  with  that  in  the  Inventory  Sheet.  The  same 
classification,  after  having  been  once  established,  must  not  be  changed  under 
any  circumstances  unless  all  are  changed,  otherwise  it  would  prevent  verifying 
the  estimated  cost  and  render  useless  any  information  compiled.  The  same 
remarks  relating  to  the  schedule  in  the  other  system,  explaining  how  the  infor 
mation  should  be  used  and  the  arrangement  of  the  columns,  also  apply  in  this 
case. 

The  cost  prices  to  be  entered  on  this  schedule  are  the  estimated  costs  which 
it  is  desired  to  verify;  and  it  is  assumed  here  that  a  record  of  these  prices  is  al 
ready  in  the  possession  of  the  management,  and  is  in  such  shape  as  to  be  easily 
dissected  or  analyzed.  This  being  the  case,  the  result  may  be  readily  entered  in 
the  several  columns  according  to  the  different  classifications  in  which  the  mate 
rial  is  to  be  divided,  as  well  as  the  different  departments  in  which  the  labor  has 


ESTIMATED    COST    SYSTEM 


239 


been  classified.     In  these  estimates  provision  should  also  have  been  made  for  the 
indirect  expenses  which  are  included  in  the  total  cost  of  the  product. 


ANALYSIS  OF  COST  OF  SALES 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

^ 

so.   1 

1 

iO.   2 

1 

0.    3 

•40.    1 

M 

O.   2 

• 

0.    3 

;.»T  E 

AMOUNT 

^TE 

AMOUNT 

Standard  Sire  11  x 


ANALYSIS   OF   COSTS   OF   SALES 
(Form  19  G) 

In  regard  to  this  form,  the  reader  is  again  referred  to  the  preceding  system, 
in  which  a  similar  form,  more  simple  in  design,  is  explained.  The  purposes  for 
which  the  form  is  to  be  used,  however,  are  absolutely  the  same  and  the  design 
itself  identical,  except  that  the  material  in  this  form  as  well  as  the  labor  has  been 
subdivided. 


PURCHASE  JOURNAL 

DATE 

NAME 

FOLIO 

AMOUNT 

CLASSIFICATION 
NO.1 

CLASSIFICATION 
NO.  2 

CLASSIFICATION 

SUNDRY 

NO.  3 

AMOUNT 

ACCOUNT 

Standard  Siie  8  x  11 


PURCHASE   JOURNAL 

(Form  21  D) 

Up  to  the  present  time  no  reference  has  been  made  to  the  manner  of  charging 
material  purchases,  for  the  reason  that  the  requirements  in  this  respect  for  the 


240 


FACTORY    ORGANIZATION   AND    COSTS 


system  first  described  were  so  simple  that  any  ordinary  bookkeeping  method 
would  be  sufficient  from  which  to  obtain  this  information.  But  in  this  case,  as 
the  material  is  to  be  classified  according  to  the  captions  shown  in  the  Inventory 
Sheet,  it  is  considered  advisable  to  present  a  form  in  this  system  that  will  suggest 
a  method  by  which  this  can  be  accomplished  without  any  particular  effort,  and 
with  practically  no  change  in  the  bookkeeping  methods. 

Purchases  are  entered  in  this  record  to  be  posted  to  the  credit  of  the  various 
accounts  for  individuals  and  companies  from  whom  goods  are  purchased,  and  the 
amounts  of  these  purchases  are  distributed  and  entered  in  their  respective  columns, 
which  in  effect  classifies  the  purchases  according  to  the  accounts  already  opened 
in  the  Ledger.  At  the  end  of  the  month  the  totals  of  these  columns  are  posted  to 
the  debit  of  the  account  appearing  at  the  head  of  the  column. 


(Form  10  M) 


PAY  ROLL 

NO. 

NAME 

AMOUNT 

OPERATING 
DEPARTMENT 
NO.  1 

OPERATING 
DEPARTMENT 

NO.  2 

OPERATING 
DEPARTMENT 
NO.  3 

INDIRECT  LABOR 

SUPERVISION 

OFFICE  SALARY 

Standard  Size  g  1 10}$ 

>  j        i 

PAY   ROLL 

(Form  10  M) 

Any  ordinary  Pay  Roll  book,  that  is  provided  with  sufficient  columns  in  which 
the  labor  in  each  department,  together  with  the  indirect  labor,  may  be  entered, 
will  answer  the  purpose  as  well  as  the  form  submitted.  This  form  illustrates  the 
manner  in  which  the  second  element  entering  into  the  cost  of  production  is  ob 
tained  according  to  operating  departments.  It  also  illustrates  how  the  amount 
of  indirect  labor  expense  is  obtained. 

The  totals  thus  obtained  should  be  entered  in  the  Ledger  through  the  Cash 
Book,  or  by  means  of  a  journal  entry  to  the  debit  of  these  department  labor 
accounts  and  the  indirect  expense  account.  In  classifying  this  labor,  it  is  to  be 
kept  in  mind  that  the  distribution  must  be  made  according  to  the  way  the  labor 
was  classified  in  the  beginning  inventory  and  in  the  estimated  costs.  In  other 


ESTIMATED    COST    SYSTEM  241 

words,  the  labor  as  classified  in  the  estimated  costs  must  be  the  same  as  the 
inventory  and  pay-roll  classifications,  not  only  in  name  but  in  fact,  otherwise 
misleading  results  may  occur. 

PLAN   OF  VERIFICATION 

The  principles  involved  in  this  instance  are  identical  with  those  laid  down  in 
the  former  system,  although  the  methods  of  verification  and  the  results  to  be 
obtained  from  this  method  are  more  complete  than  in  the  former  plan.  It  is 
possible  to  show  in  this  instance  not  only  that  the  material  has  been  inaccurately 
estimated,  but  which  kind  of  material.  The  same  is  true  in  the  case  of  labor,  as 
not  only  is  the  total  difference  shown,  but  it  is  also  shown  in  which  department 
or  class  of  labor  mistakes  have  occurred  in  estimating  labor  costs.  Where  the 
labor  amounts  to  a  considerable  sum,  and  large  inaccuracies  have  occurred  in  any 
one  department,  to  a  greater  extent  than  in  others,  a  careful  examination  of 
estimates  relating  to  articles  manufactured  in  this  department  upon  which  the 
labor  cost  is  heavy  can  be  made,  and  the  estimate  revised  so  as  to  correct  these 
defects  in  preparing  future  estimates. 

This  system  will  be  started  in  the  same  manner  as  the  other  system,  by  charg 
ing  to  each  material  account  and  to  each  labor  account,  as  well  as  to  indirect 
expense  account,  the  amount  shown  in  the  beginning  inventory  in  the  columns 
provided  for  these  different  accounts.  This  will  be  the  means  of  opening  these 
accounts  in  the  books  to  make  this  plan  operative.  After  this  has  been  done, 
the  purchases  should  be  entered  and  charged  to  these  accounts  from  the  Purchase 
Journal  described  herein.  The  labor  can  be  charged  to  these  accounts  from  the 
Cash  Book  or  by  making  a  journal  entry,  at  the  option  of  the  bookkeeper. 

At  the  end  of  the  year,  or  whenever  it  is  desired  to  verify  these  estimated 
costs,  an  inventory  should  be  taken  on  the  same  form  and  in  the  same  manner 
as  the  beginning  inventory  was  taken,  so  far  as  classification  is  concerned.  This 
inventory  should  be  credited  to  these  accounts,  which  will  then  show  the  costs  of 
the  various  kinds  of  material  used  in  the  manufacture  of  the  goods  actually  sold, 
as  well  as  the  labor  in  the  several  departments  and  the  indirect  expenses  incurred 
for  the  same  purposes,  all  of  which  should  be  transferred  to  the  sales  account  or 
profit  and  loss  account,  and  the  books  closed. 

The  amount  so  transferred  to  the  sales  account  or  profit  and  loss  account, 
representing  the  actual  cost  of  all  of  the  material  accounts  and  labor  accounts 
separately,  as  well  as  the  amount  of  the  indirect  expenses,  should  now  be  com 
pared  with  the  results  shown  in  the  Analysis  of  Cost  of  Sales,  where  all  of  the  costs 
appear  as  estimated  according  to  the  same  classification.  The  difference  between 


242  FACTORY    ORGANIZATION    AND    COSTS 

the  two  amounts  will  represent  the  inaccuracies  in  estimating  costs,  the  inaccura 
cies  for  each  classification  being  shown. 

From  this  it  can  be  seen  that,  since  the  accounts  in  the  Ledger  have  been 
charged  with  the  beginning  inventory  relating  to  each  of  these  accounts,  and 
subsequently  with  all  of  the  purchases,  labor,  and  expenses,  and  since  they  have 
been  credited  with  the  inventory  at  the  end  of  the  period,  analyzed  in  the  same 
way,  the  balance  represents  the  actual  cost  of  all  of  the  goods  sold.  The  schedule 
showing  an  analysis  of  estimated  costs,  when  compared  with  the  actual  cost,  will 
furnish  reliable  data  showing  wherein  the  estimated  costs  are  at  fault.  The 
amount  or  extent  by  which  the  estimated  costs  are  inaccurate,  and  wherein  they 
are  inaccurate,  will  regulate  the  action  to  be  taken  in  revising  these  cost  estimates. 

Before  entering  the  inventory  in  the  Ledger,  or  closing  the  books,  it  should  be 
determined  whether  it  is  desired  to  record  the  result  of  this  test  or  verification  of 
estimates  in  the  general  books.  If  this  is  to  be  done,  the  following  is  the  proper 
plan  of  procedure.  Credit  the  several  material  accounts,  as  well  as  the  labor 
accounts  and  the  indirect  expense  account,  with  the  amounts  shown  in  the  Anal 
ysis  of  Cost  of  Sales  in  which  is  recorded  the  total  estimated  cost  of  all  goods  sold 
between  two  inventory  periods,  according  to  the  same  classification  as  is  entered 
in  the  Ledger.  Charge  this  amount — that  is,  the  total  of  all  these  estimated 
costs — to  the  sales  account  or  profit  and  loss  account,  according  to  the  manner 
in  which  the  books  are  closed.  Then  take  the  difference  between  the  balances 
shown  in  the  material  accounts,  labor  accounts,  and  indirect  expense  account,  com 
pare  these  balances  with  the  total  of  the  inventory  according  to  the  same  classifi 
cation,  and  ascertain  the  exact  amount  of  the  difference.  Enter  this  difference 
in  the  general  books  by  means  of  a  journal  entry  to  the  debit  or  credit  of  the 
sales  account  or  profit  and  loss  account,  and  credit  or  debit  the  several  material 
and  labor  accounts  and  the  indirect  expense  account  with  the  amount  of  the 
difference  relating  to  each  account.  These  accounts  will  then  show  the  actual 
inventory  of  the  material  accounts,  the  labor  accounts,  and  the  indirect  expense 
account,  and  will  correspond  with  the  totals  shown  by  the  actual  inventory. 
The  sales  account  or  profit  and  loss  account,  after  this  entry  has  been  made,  will 
show  the  gross  profit  based  on  actual  figures,  whereas  before  this  entry  was  made 
adjusting  the  inventory  accounts  the  estimated  gross  profit  appeared. 

The  term  "gross  profit,"  as  here  used,  means  the  difference  between  the  sell 
ing  price  and  the  actual  cost  price,  including  indirect  factory  expenses,  but  not 
including  such  expenses  as  selling  expenses  and  administrative  expenses,  which 
do  not  relate  to  the  cost  of  production  and  should  not  be  so  treated. 

As  has  been  shown  in  the  preceding  system,  a  monthly  profit  and  loss  state 
ment  and  balance  sheet  can  be  prepared  from  the  General  Ledger,  if  the  entries 


ESTIMATED    COST    SYSTEM  243 

above  mentioned,  relating  to  the  Analysis  of  Cost  of  Sales,  are  prepared  and  en 
tered  in  the  records  monthly  instead  of  making  this  entry  only  at  the  end  of  the 
year.  If  the  entry  is  made  monthly,  instead  of  at  the  end  of  the  year,  the  same 
information  will  appear  in  the  ledger  accounts  relating  to  this  particular  part  of 
the  bookkeeping  as  if  the  entry  were  made  annually,  except  that  no  adjustment  of 
inventories  and  therefore  no  verification  of  estimated  costs  can  be  made.  The 
accuracy  of  the  profits  shown  will  naturally  depend  upon  the  accuracy  of  the 
estimates  of  cost. 


CHAPTER  XXXIV 

ESTIMATED    COST    SYSTEM    BASED    ON    A    MONTHLY    OR    ANNUAL    VERIFICATION    OF 

ESTIMATED   COST   OF   CLASS    OF   PRODUCT   ACCORDING   TO   DEPARTMENTAL 

MATERIAL,    LABOR,    AND   INDIRECT   EXPENSES 

Principles — Method — Different  Elements — Inventory — Schedule  of  Estimated  Cost  by  Class  of 
Product — Analysis  of  Cost  by  Classification — Use  of  Purchase  Journal — Material  Requisition — 
Summary  of  Material — Time  Reports — Pay  Roll — Plan  of  Verification,  Showing  Inventory — 
Charges  for  Labor  and  Material  by  Department — Estimated  Cost  of  Sales  by  Classification — 
Accounting  Features  in  the  Ledger — Statement  of  Profit  and  Loss  and  how  Arrived  at  Monthly 
on  Estimated  Cost  Basis,  and  Yearly  on  Inventory — Inventory  Closing — Treatment  of  Selling 
and  Administrative  Expenses — Balance  Sheet. 

THE  basic  principles  of  this  plan  of  verification  are  similar  to  the  two  preced 
ing  systems,  the  only  difference  being  that  the  analysis  is  more  complete  than 
in  the  system  first  mentioned,  and  an  additional  feature  is  added  to  the  extensive 
analysis  shown  in  the  second  system.  This  feature  is  in  the  form  of  providing 
the  plan  or  method  of  classifying  the  sales  according  to  a  general  classification  of 
the  product  sold,  in  obtaining  the  analysis  of  cost,  in  such  a  way  as  to  be  trace 
able  to  each  classification  of  the  product.  In  this  way  it  may  be  seen  that  after 
verifying  the  costs  the  results  obtained  will  show  which  of  the  several  classes  of 
product  have  been  inaccurately  estimated  as  to  cost,  and  which  kind  of  material 
has  been  inaccurately  estimated  and  in  which  department  the  labor  has  been 
erroneously  estimated,  together  with  any  inaccuracies  in  the  distribution  of  the 
indirect  expenses  relating  to  this  particular  class  of  product. 

This  should  demonstrate  that  in  the  first  system  the  verification  plan  provides 
only  for  verifying  the  three  elements  in  the  cost  of  production — namely,  material, 
labor,  and  indirect  expenses;  while  in  the  second  system  this  plan  of  verification 
is  more  extensive,  being  based  on  an  analysis  of  these  three  elements  of  cost, 
thus  extending  the  plan  of  verification  to  each  of  these  subdivisions.  And  in  this, 
the  third  system,  the  plan  of  verification  is  carried  still  further,  the  results  show 
ing  not  only  an  analysis  of  subdivision  of  the  elements  of  cost,  but  also  an  anal 
ysis  of  the  cost  into  the  several  classifications  of  product  sold,  each  classification 
consisting  of  numerous  articles.  This  analysis  is  made  in  order  to  indicate  which 
of  the  elements  of  cost  have  been  incorrectly  estimated. 

This,  the  third  plan  of  verification,  is  therefore  the  most  extensive  and  conse 
quently  the  most  complete.  The  object  in  showing  the  three  plans  is  to  begin 
with  the  simplest  method,  for  purposes  of  illustration,  and  to  extend  it  step  by 
step,  until  a  complete  plan  is  explained. 


ESTIMATED    COST    SYSTEM 


245 


CForm  16  B) 


INVENTORY  SHEET                                                                                        1 

l—                                                                                               Department 

ARTICLE 

QUANTITY 

OPERATION  No.1 

MATERIAL 
OPERATION  N0.2 

OPERATION  N0.3     OPERATION  No.1 

LABOR 

OPERATION  NoT2 

'  OPERATION  NO.3 

IN 
RATE 

3IRECT 

AMOUNT 

I 
RATE 

OTAL 
AMOUNT    ; 

F-4'C 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

iV  )UNT 

RATE 

AV 

RATE 

»v         M 

Standai 

a  :• 

In 

1 

cU 

INVENTORY   SHEET 

(Form  46  B) 

A  system  of  this  description  is  calculated  to  verify  the  elements  of  cost  by  a 
general  classification  of  products  into  departments,  and  the  inventory,  which  is  of 
course  the  starting  point,  must  be  taken  with  this  object  in  view.  The  following 
would  be  the  proper  method  to  pursue.  Use  a  separate  sheet,  or  several  sheets 
as  the  case  may  be,  for  each  department,  and  extend  the  estimates  of  cost  in  the 
several  material  and  labor  columns  and  in  the  indirect  expense  column.  This 
will  then  furnish  an  analysis  of  the  total  estimated  cost  of  the  article,  and  will, 
when  the  inventory  for  this  department  is  completed,  present  the  information 
necessary  to  open  the  ledger  accounts  for  this  classification  of  product — that  is, 
the  several  material  and  labor  accounts  as  well  as  the  indirect  expense  account. 
It  can  thus  be  seen  that  for  each  department  there  will  be  several  ledger  accounts 
for  material  and  labor  and  one  for  indirect  expenses.  In  these  accounts  the  total 
shown  by  the  inventory  for  each  department  should  be  charged. 

The  reader  is  referred  to  the  preceding  systems  for  any  information  relative 
to  the  basic  principles  involved,  as  only  the  method  of  obtaining  this  information 
is  stated  in  this  chapter. 

Attention  is  called  to  the  method  of  treating  raw  material  on  hand  not  relat 
ing  in  any  way  to  goods  in  process  of  manufacture  or  to  the  finished  product. 
The  amount  of  material  in  the  storeroom,  or  in  the  plant,  upon  which  no  labor 
has  been  expended,  should  be  entered  on  a  separate  sheet  in  the  ordinary  way, 
and  the  total  of  this  amount  should  be  charged  to  an  account  in  the  Ledger  styled 
"Storeroom"  or  "Raw  Material."  This  account  will  be  charged  from  month  to 
month  with  all  purchases  relating  to  material  not  in  the  nature  of  supplies,  and 
will  be  credited  from  month  to  month  with  the  raw  material  used,  as  reported  by 
the  Material  Requisitions  to  be  used  in  connection  with  this  system. 


246 


( Form  13  U) 


SCHEDULE  OF  ESTIMATED  COSTS 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

NO.   1 

NO.  2 

NO.   3 

NO.   1 

NO.  2 

NO.    3 

. 

_-  —  — 

•~~"  —  n  — 

Standard  Size  7  x  7K 


SCHEDULE    OF   ESTIMATED    COSTS 

(Form  13  U) 

The  only  difference  between  the  design  and  purpose  of  this  form  and  the  one 
used  in  the  second  system  is  in  the  use  of  the  information  furnished  in  pricing 
the  inventory  at  the  beginning  and  end  of  the  period,  and  in  pricing  the  sales 
during  the  period  intervening  between  the  two  inventories.  This  difference  does 
not  affect  the  form  in  any  way,  and  any  additional  information  concerning  other 
forms  will  be  explained  when  the  forms  affected  are  reviewed,  as  any  remarks  at 
this  point  might  tend  to  confuse  rather  than  to  enlighten. 


(Form  19  G) 


ANALYSIS  OF  COST  OF  SALES 

ARTICLE 

MATERIAL 

LABOR 

INDIRECT 

TOTAL 

NO.    1 

NO.    2 

NO.    3 

NO.    1 

NO.   2 

NO.    3 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

RATE 

AMOUNT 

KATE 

AMOUNT 



Standard  Size  11  x  15 

ANALYSIS    OF   COST   OF   SALES 

(Form  19  G) 

This  is  the  same  design  as  used  in  the  second  system,  its  use  in  this  case  being, 
however,  different.  This  difference  consists  merely  in  using  a  separate  sheet,  or 
several  sheets  as  the  case  may  be,  for  each  classification  of  product,  showing  all 
the  articles  sold  between  the  two  inventory  periods  and  giving  an  analysis  of  the 


247 


estimated  cost  entered  in  the  several  material  and  labor  columns  and  in  the  indi 
rect  expense  column.  A  separate  sheet  must  also  be  used  for  each  classification 
or  product;  whereas  in  the  second  system  the  articles  were  entered  without  any 
regard  for  classification.  It  should  also  be  remembered  that  this  classification 
must  be  identical  with  the  beginning  inventory  classification,  for  if  the  product 
were  classified  differently  from  the  original  inventory  it  would  be  impossible  to 
verify  the  estimated  cost  of  each  of  these  various  classifications  of  product. 


(Form  21  D) 


PURCHASE  JOURNAL 

DATE 

NAME 

FOLIO1 

AMOUNT 

CLASSIFICATION 
NO.1 

CLASSIFICATION 
NO.  2 

CLASSIFICATION 
NO.  3 

SUNDRY 

AMOUNT 

ACCOUNT 

Stamlard  Size  8  x  11 


PURCHASE   JOURNAL 

(Form  21  D) 

This  record  is  to  be  used  for  the  purpose  of  entering  invoices  for  goods  pur 
chased  and  differs  from  the  form  used  in  the  preceding  system  only  to  the  extent 
that  one  material  column  for  raw  material  is  used  in  place  of  several,  as  Material 
Requisitions  are  to  be  used  in  connection  with  this  plan.  All  material  purchased 
can  now  be  charged  to  one  account,  the  distribution  to  the  respective  depart 
ments  being  made  from  the  Material  Requisitions.  The  total  purchases  of  mate 
rial  for  the  month,  exclusive  of  supplies  in  the  nature  of  an  expense,  should  be 
posted  to  the  debit  of  the  storeroom  account,  which  account  has  been  previously 
charged  with  the  inventory  of  raw  material  at  the  beginning  of  the  period. 

Except  as  above  noted  the  method  of  using  this  form  is  the  same  as  in  the 
other  system,  and  should  be  readily  understood  by  any  one  familiar  with  book 
keeping. 

MATERIAL   REQUISITION 

(Form  6  F) 

The  use  of  Material  Requisitions  is  not  incorporated  in  either  of  the  other 
systems,  but  is  necessary  to  make  a  plan  of  this  description  operative.  As  has 
already  been  shown,  the  total  amount  of  raw  material  indicated  by  the  inventory 


248 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  6  F) 


Department 


MATERIAL   REQUISITION  No. 

.    Date__ 


.10. 


ORDER 
NO. 


DESCRIPTION 


QUANTITY          RATE    |       AMOUNT 


Standard  Size  6 


is  charged  to  a  storeroom,  or  raw  material  account,  in  the  Ledger,  to  which  is  also 
charged,  from  month  to  month,  the  total  purchases  of  such  material.  Conse 
quently  this  account,  through  a  requisition  of  this  description,  should  receive 
credit  each  month  for  all  material  delivered  to  the  operating  departments  charge 
able  to  the  several  classes  of  product  for  which  the  material  was  used.  These 
material  requisitions  should  be  priced  according  to  the  invoice  or  cost  prices. 
After  this  has  been  done,  the  storeroom  or  raw  material  account  will  naturally 
show  the  value  of  the  raw  material  on  hand  based  on  inventory  or  purchase  price. 
When  these  requisitions  have  been  priced — a  separate  one  being  used  for  each 
classification  of  product  to  which  the  material  is  chargeable — a  summary  should 
be  made  each  month  on  the  form  next  mentioned,  showing  the  classification  of 
product  chargeable.  The  total  thus  ascertained  is  the  amount  to  be  entered  in 
the  Ledger  through  a  journal  entry.  It  should  be  credited  to  the  storeroom  or 
raw  material  account,  and  charged  to  the  material  accounts  relating  to  each 
classification  of  product  for  which  the  material  was  used,  as  shown  in  the  Summary 
of  Material  Requisitions. 

(Form  8  D) 


SUMMARY  OF  MATERIAL  REQUISITION 

i                                      DEPT.  A 

DEPT.  B 

DEPT.  C 

CLASSIFICATION 
NO.  1 

NO.  2 

NO.  3 

NO.   t 

NO.  2 

NO.  3 

NO.   1 

NO.  2 

NO.  3 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

NO. 

AMOUNT 

Standard  Size 


ESTIMATED  COST  SYSTEM 


249 


SUMMARY   OF   MATERIAL   REQUISITIONS 

(Form  8  D) 

As  the  name  implies,  this  form  is  merely  to  be  used  for  the  purpose  of  obtain 
ing  the  cost  of  material  used  during  the  month,  chargeable  to  the  various  clas 
sifications  of  product.  Any  other  form,  as  to  ruling,  columns,  etc.,  which  will 
furnish  the  same  information,  may  be  used  if  preferred.  The  results  obtained,  how 
ever,  should  be  entered  in  the  journal,  and  each  classification  of  product  charged 
with  the  amount  of  material  shown;  and  the  total  amount  of  all  material  used 
should  be  credited  to  the  storeroom  or  raw  material  account. 

CForm  9  AB  ) 


Name 

TIME  TICKET 

Date 

SALES 
DEPARTMENT 

ORDER 
NO. 

DESCRIPTION 

TIME 

RATE 

AMOUN' 

r 

_.  ._—  •  —  •  _^_^ 

-~-^_ 

Standard  Size  5  i 


TIME   REPORT 
(Form  9  AB) 

Inasmuch  as  this  plan  involves  ascertaining  the  labor  chargeable  to  each 
classification  of  product,  according  to  operating  departments,  it  will  be  necessary 
to  use  a  form  similar  in  character  to  the  one  presented.  A  separate  report  should 
be  made  out  by  each  employee  in  the  plant  whose  time  relates  in  any  way  to  the 
product  manufactured.  This  report  should  show  the  department  in  which  the 
employee  is  engaged  and  the  class  or  product  to  which  his  time  is  chargeable,  in 
order  that  these  time  reports  may  be  summarized  to  show  the  amount  of  labor 
chargeable  to  each  classification  of  product  in  each  operating  department.  The 
method  of  summarizing  this  information  will  be  explained  in  the  Pay  Roll  form 
following. 

PAY   ROLL 
(Form  10  M) 

This  form  shows,  in  total,  the  amount  of  each  employee's  pay  in  each  operat 
ing  department,  chargeable  to  each  classification  of  product,  as  well  as  the  amount 
of  his  non-productive  or  indirect  labor  —  meaning  labor  that  cannot  be  charged  to 
any  particular  classification  of  product. 


250 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  10  M) 


PAY  ROLL 

NAME 

AMOUNT 

OPERATING 
DEPARTMENT 
NO.I 

OPERATING 
DEPARTMENT 
NO.  2 

OPERATING 
DEPARTMENT 
NO.  3 

INDIRECT  LABOR 

SUPERVISION 

OFFICE  SALARY 

Standard  Size  8  x 


A  separate  sheet  should  be  used  for  each  operating  department,  and  the  col 
umns  from  left  to  right,  provided  for  distribution  purposes,  should  be  headed 
with  as  many  classifications  of  the  product  as  are  to  be  kept,  providing  extra 
columns  for  indirect  labor,  supervision,  and  similar  items.  The  total  of  this  pay 
roll,  as  analyzed,  may  be  entered  in  the  Cash  Book,  showing  the  labor  chargeable 
to  each  classification  or  product  according  to  operating  departments,  as  well  as 
the  indirect  labor,  etc.,  and  can  subsequently  be  posted  in  the  Ledger  to  the  debit 
of  these  accounts.  If  desired,  only  the  total  may  be  entered  in  the  Cash  Book, 
which  can  be  posted  to  the  debit  of  a  pay  roll  account.  The  pay  roll  account 
can  then  be  credited,  through  a  journal  entry  at  the  end  of  the  month;  and  the 
accounts  mentioned — that  is,  the  classifications  of  product  as  well  as  the  indirect 
labor — can  be  charged.  This  last  method  will  prove  more  satisfactory  than  the 
first,  as  the  entry  distributing  these  charges  may  be  made  monthly  instead  of 
weekly. 

PLAN   OF   VERIFICATION 

The  object  of  this  plan,  as  has  already  been  explained,  is  to  verify  the  esti 
mated  costs  relating  to  each  classification  of  product,  according  to  several  gen 
eral  subdivisions  of  material,  labor,  and  indirect  expense. 

It  has  also  been  shown  that  separate  accounts  must  be  opened  in  the  Ledger 
with  each  classification  of  product— for  the  various  materials  relating  to  the 
product,  for  each  operating  department  labor  charge,  and  for  the  indirect  expense 
charge.  A  separate  account  must  also  be  opened  for  the  storeroom  or  raw  mate 
rial  account.  The  inventory  shown  in  the  inventory  sheet  must  be  transferred 
or  entered  to  the  debit  of  these  several  accounts— viz :  the  raw  material  account, 
and  the  various  accounts  relating  to  the  classification  of  product  to  which  the 
inventory  relates.  After  this  has  been  done,  the  subsequent  purchases  of  raw 


ESTIMATED  COST  SYSTEM  251 

material  should  be  charged  from  the  Purchase  Journal  to  the  raw  material  ac 
count,  as  has  already  been  explained.  This  account  must  not,  however,  be  charged 
with  any  purchases  of  an  expense  nature  not  included  in  the  estimated  material 
cost,  and  any  such  purchases  should  be  charged  directly  to  the  indirect  expense 
account.  The  labor  chargeable  to  these  various  classifications  of  product,  accord 
ing  to  operating  departments,  may  be  entered  in  the  Ledger  through  the  Cash  Book 
or  the  Journal,  as  has  already  been  explained  in  describing  the  Pay  Roll.  In  any 
case  the  total  labor  chargeable  to  each  classification  of  product,  according  to 
operating  departments,  should  be  entered  in  these  accounts  weekly  or  at  the  end 
of  the  month,  and  the  amount  chargeable  to  indirect  expenses  for  indirect  labor 
and  similar  items  shown  in  the  Pay  Roll  should  be  similarly  treated. 

It  will  now  be  seen  that  all  direct  charges,  such  as  material  and  labor,  have 
been  entered  to  the  debit  of  the  classification  of  product  to  which  they  relate; 
and  it  will  be  observed  that  an  account  appears  in  the  Ledger  styled  "  Indirect 
Expenses,"  not  relating  to  any  of  these  classifications  of  product,  but  which  should 
be  charged  or  pro-rated  among  them.  This  can  be  done  by  ascertaining  the  total 
amount  of  indirect  expenses  and  by  dividing  this  by  the  total  labor  charged  to  all 
of  the  classifications  of  product.  The  percentage  thus  ascertained  should  be 
multiplied  by  the  amount  of  labor  charged  to  each  classification  of  product,  and 
the  result  distributed  or  charged  through  a  journal  entry  to  each  of  these  prod 
ucts  as  indirect  expenses,  the  total  amount  being  entered  to  the  credit  of  the 
indirect  expense  account  proper,  which  account  should  then  balance.  Other 
methods  of  pro-rating  indirect  expenses  are  outlined  in  Chapter  IV,  devoted  to 
this  subject.  It  can  be  seen  that  all  classifications  of  product  are  now  charged, 
with  all  expenditures  relating  to  the  cost  of  production.  The  next  question  to 
be  considered,  according  to  this  plan  of  verification,  is  the  means  of  crediting 
these  various  classifications  of  product  with  the  amount  of  goods  sold  at  estimated 
cost,  this  estimated  cost  being  analyzed  in  the  same  way  in  which  the  expendi 
tures  or  charges  are  analyzed.  This  information  is  contained  in  the  Analysis  of 
Cost  of  Sales,  which  shows  all  sales  during  the  month  for  each  classification  of 
product,  analyzed  in  the  same  way  in  which  the  ledger  accounts  are  kept;  the 
cost  being  entered  according  to  the  schedule  of  estimated  costs  to  be  verified. 
It  is  therefore  clear  that  if  the  totals  shown  in  the  Analysis  of  Cost  of  Sales  for 
each  classification  of  product  are  credited  in  the  Ledger  to  the  corresponding  ac 
count,  these  accounts  will  show  the  value  of  the  inventory  based  on  the  estimates 
for  each  classification  of  product  and  analyzed  according  to  the  several  material 
and  labor  accounts  and  indirect  expenses  relating  to  each  classification.  This 
result  should  agree  at  the  end  of  the  year,  or  when  an  inventory  is  taken,  with  the 
actual  inventory,  provided  that  the  ending  inventory  has  been  taken  in  the  same 


252  FACTORY   ORGANIZATION   AND    COSTS 

way  and  at  the  same  prices  at  which  the  sales  were  priced  at  cost.  If  the  esti 
mated  costs  are  incorrect,  the  difference  between  the  actual  inventory  and  the 
theoretical  inventories,  shown  in  the  books,  will  represent  the  inaccuracy  in  esti 
mating  costs,  not  only  in  the  class  of  product  but  also  in  the  various  material  and 
labor  accounts  and  the  indirect  expenses.  With  this  information  it  will  be  pos 
sible  to  ascertain  which  class  of  product  has  been  most  inaccurately  estimated, 
where  these  inaccuracies  are  most  prominent,  in  what  department  the  labor  was 
inaccurately  estimated,  whether  the  principal  errors  occurred  in  estimating  the 
costs  of  any  particular  class  of  material,  and  to  what  extent  calculations  and  dis 
tribution  of  indirect  expenses  have  affected  the  errors  in  estimating  costs. 

STATEMENT    OF    PROFIT   AND    LOSS 
(Form  53  A) 

The  object  of  presenting  this  form  is  to  illustrate  more  clearly  the  result  to 
be  obtained  by  operating  this  plan. 

Before  explaining  the  form  shown,  it  is  thought  best  to  more  fully  explain 
the  closing  entries  just  described  from  a  bookkeeping  standpoint.  At  the  end  of 
the  month,  when  the  total  sales  at  the  selling  price  have  been  ascertained  accord 
ing  to  the  respective  classifications  of  product,  the  total  sales  for  each  classification 
should  be  credited  to  the  sales  account  for  that  classification  or  product,  this  ac 
count  being  independent  of  the  accounts  already  opened  for  the  same  product. 
The  accounts  previously  opened  relate  to  expenditures  and  costs,  show  the  inven 
tory,  and  have  no  connection  whatever  with  the  sales  at  the  selling  price.  The 
purpose  of  opening  a  separate  account  for  each  classification  of  product  sold  can 
now  be  understood.  These  accounts  should  be  charged  with  the  total  cost  for 
each  classification  of  product  as  shown  by  the  Analysis  of  Cost  of  Sales,  and  this 
entry  represents  the  debit  for  the  corresponding  credit  that  has  been  posted  to 
the  various  accounts  for  the  classification  of  product.  The  sales  accounts  for 
each  classification  are  credited  with  the  sales  at  the  selling  price,  and  charged 
with  the  sales  at  the  estimated  cost  price,  as  has  been  explained;  and  the  differ 
ence,  or  balance,  consequently  represents  the  estimated  gross  profit. 

In  preparing  this  Profit  and  Loss  statement  it  will  be  necessary  to  refer  to 
the  ledger  account,  and  enter  the  sales  and  the  estimated  cost  of  the  sales,  which 
already  appear  in  the  account,  in  the  columns  provided  for  that  purpose.  The 
difference  between  the  two  amounts  is  extended  in  the  column  headed  "  Gross 
Profit,"  opposite  the  department  to  which  it  relates.  After  this  has  been  done, 
the  next  step  is  to  ascertain,  by  referring  to  the  accounts  styled  "Selling  Ex 
penses  "  and  "  Administrative  Expenses,"  the  total  of  these  accounts,  and  enter 


I 

" .-  C:    •  •?  -  7   -  >  ~r   — 
'  - ''  -' 


**^  ^i  *?•,'  o  "  ^ ,   r 
t  •§  O  >-T(  O  rJ  95  -~, 


a  o  «  ocl  t^. 


M   5 : 


^JtiL1 

a  >-i  so  • 


255 

these  amounts  in  the  Statement  in  the  columns  provided  therefor.  The  per  cent, 
that  the  selling  expenses  bears  to  the  estimated  cost  of  goods  sold  should  be  ascer 
tained,  and  the  estimated  cost  in  each  department  multiplied  by  this  per  cent. 
The  same  procedure  should  be  followed  in  the  case  of  administrative  expenses. 
In  this  way  the  selling  expenses  and  administrative  expenses  are  distributed 
among  the  several  departments.  These  two  amounts — that  is,  the  selling  ex 
penses  and  administrative  expenses — should  then  be  added  and  the  sum  entered 
in  the  total  column,  opposite  the  proper  department.  These  amounts  will  then 
represent  the  total  expenses  chargeable  to  each  department.  By  deducting  these 
expenses  from  the  estimated  gross  profit  appearing  opposite  each  department, 
the  "Net  Profit"  is  obtained,  and  entered  in  the  column  thus  headed.  The  total 
of  this  column,  showing  the  estimated  net  profit  of  each  department,  will  of  course 
indicate  the  total  estimated  net  profits  of  the  business,  the  accuracy  of  which 
will  depend  entirely  and  absolutely  upon  the  accuracy  of  the  estimated  costs. 

After  the  selling  expenses  and  administrative  expenses  chargeable  to  each 
classification  of  product  have  been  ascertained,  these  accounts — that  is,  the  sell 
ing  and  administrative  expense  accounts — should  be  credited  with  the  total 
amount,  and  the  various  classifications  of  product  charged  with  the  proper 
amount.  These  classification  accounts  will  then  show  the  estimated  net  profit 
on  the  various  classifications  of  product  sold,  which  amount  should  then  be  trans 
ferred  to  the  general  profit  and  loss  account  in  the  usual  manner. 

BALANCE    SHEET 

(Form  55  A) 

Those  familiar  with  bookkeeping  will  readily  understand  this  statement, 
which  represents  a  trial  balance  after  the  books  have  been  closed,  and  is  usually 
called  a  Balance  Sheet.  From  a  bookkeeping  standpoint  it  does  not  differ  in 
this  instance  from  any  other . balance  sheet;  but  from  a  business  standpoint  it 
differs  to  the  extent  that  the  accuracy  of  the  inventory  shown  is  based  on  the 
accuracy  of  the  estimates  of  cost  used  in  crediting  the  several  classifications  of 
product.  As  this  plan  provides  for  preparing  this  statement  monthly,  based  on 
these  estimated  inventories,  it  might  be  well  to  call  attention  to  the  fact  that 
when  the  actual  inventory  is  taken  the  difference  between  the  estimated  and 
actual  figures  should  be  credited  to  these  accounts  and  charged  to  the  sales  ac 
count  for  the  same  classification.  This  means  that,  if  the  theoretical  inventory 
or  the  balance  as  shown  in  the  books  exceeds  the  actual  inventory,  the  inventory 
accounts  must  be  credited  and  the  sales  accounts  charged;  and  where  the  actual 
inventory  exceeds  the  balance  shown  in  the  ledger  account  the  entries  should  be 
reversed. 


CHAPTER  XXXV 

DEPARTMENTAL   COST   SYSTEMS,   SHOWING   COSTS   AND    PROFITS   AT 

INVENTORY    PERIODS 

Nature  of  System— No  Extra  Clerk  Hire  Required— Organization  Value  of  a  Production  Order- 
Its  Use  as  a  Cost  Record— Bill  of  Material  for  Schedule  of  Material  Cost  and  How  Used— The 
Relation  of  Day  and  Piece  Work  Plan  to  this  System— How  the  Pay  Roll  is  Analyzed— Nature 
and  Use  of  the  Production  Report— The  Use  of  a  Register  of  Accounts  Payable  and  How  it 
should  be  Kept— Register  of  Sales,  showing  Classification  by  Departments— Departmental 
Accounts— Handling  of  Raw  Material— Classification  of  Accounts  and  How  Charged  and 
Credited — Profit  and  Loss — Inventory. 

IN  the  preceding  chapters  relating  to  estimated  cost  systems,  an  effort  was 
made  to  verify  estimated  costs  and  to  determine  wherein  the  inaccuracies  oc 
curred.  In  this  chapter  a  system  will  be  explained  that  will  enable  the  manu 
facturer  to  inaugurate  a  cost  system,  making  it  possible  to  obtain  the  cost  of 
the  general  classes  of  product  manufactured  without  installing  a  detailed  system 
of  cost  finding,  for  obtaining  the  actual  cost  of  production  of  each  particular 
article  manufactured.  At  the  same  time  these  records  will  be  compiled  under 
the  general  classifications,  so  as  to  show  the  actual  cost  and  profits  according 
to  a  general  class  of  product  at  inventory  periods. 

The  principal  objection  advanced  by  the  average  manufacturer  against  the 
inauguration  of  a  complete  cost  system  is  the  extra  amount  of  detail  involved 
in  the  compilation  of  the  data  necessary  to  obtain  the  actual  cost  of  each  article 
manufactured,  which  usually  necessitates  an  enlargement  of  the  office  force  or 
clerical  help.  One  of  the  objects  of  this  system  is  to  indicate  to  the  manufac 
turer  whether,  in  his  particular  case,  a  system  involving  such  details  is  necessary 
or  not.  In  the  event  that  a  particular  department  or  class  of  goods  shows  a  loss 
at  the  end  of  an  inventory  period,  and  the  other  departments  or  classes  of  goods 
show  a  profit  satisfactory  to  the  manufacturer,  then  a  detailed  cost  system  may 
be  inaugurated  in  this  particular  department.  In  this  connection  the  reader  may 
infer  that  no  great  saving  would  be  effected  by  the  inauguration  of  a  complete 
cost  system  in  all  departments.  This,  however,  is  a  wrong  impression,  as  the 
saving  in  any  factory  would  be  sufficient  to  justify  a  liberal  expenditure  in  this 
direction,  and  at  the  same  time  result  in  increased  earnings.  In  many  cases, 
where  the  product  consists  of  several  hundred  different  articles,  many  of  these 
articles  are  manufactured  at  an  actual  loss,  and  consequently  a  loss  is  paid  out  of 


DEPARTMENTAL    COST    SYSTEMS 


257 


profits,  although  the  net  result  or  profit  in  all  departments  is  satisfactory  to  the 
management.     This  has  been  shown  in  numerous  cases  in  actual  practice. 


PRODUCTION    ORDER 

(Form  5K) 

(Form  5  K) 


To  Foreman..   .  _ 

Return  to  Office  immediately  upon  completion. 

FACTORY  ORDER                    No. 

.      Department                     Date 

DATE 
WANTED 

DESCRIPTION 

QUANTITY 

You  are  hereby  au 
from  Store  Room, 

Completed  

-o- 
tl  t 

zed  to  manufacture  the  above  articles,  as  stated;  material  to  be  drawn 
er  Bill  of   Material  No  

19 

(Manager) 

(foreman) 

(Standard  Size  5  x  ?X.) 

The  purpose  of  this  form  is  to  substitute  written  instructions  for  verbal  direc 
tion  in  the  manufacture  of  all  products  in  the  several  operating  departments,  and 
is  intended  to  enable  the  management  to  direct  and  regulate  the  production  of 
the  class  of  product  called  for  by  orders  received  from  customers. 

The  proper  use  of  this  form  will  enable  the  management  to  keep  in  touch  with 
all  that  is  going  on  in  the  several  departments  of  the  business,  and  to  supervise 
the  labor  forces  and  the  heads  of  the  several  departments  in  such  a  way  as  to 
materially  increase  the  efficiency  of  the  plant.  At  the  same  time  it  helps  to  es 
tablish  a  check  on  over-production  of  goods,  and  to  stimulate  production  on  goods 
actually  ordered  and  for  which  customers  make  frequent  inquiry.  The  form  in 
itself  is  simple  and  can  be  readily  understood,  and  the  practical  operation  and  its 
intelligent  use  will  effect  a  greater  saving  than  might  seem  apparent  by  a  casual 
examination. 

In  another  section  of  this  chapter  will  be  found  a  Day  and  Piece  Work  Report, 
which  should  be  used  by  each  employee  in  the  plant ;  and  the  number  of  this  Pro 
duction  Order  should  appear  on  this  report,  not  for  the  purpose  of  cost  finding, 
but  with  the  object  in  view  of  preventing  the  employee  from  filling  in  time  reports 
and  piece-wwk  reports  not  actually  in  process  of  manufacture.  This  relates  not 
only  to  establishing  a  safeguard  against  dishonesty  so  far  as  piece  work  is  con 
cerned,  but  is  further  intended  to  prevent  employees  from  making  out  reports  of 
time  not  consumed  in  the  business  of  the  company. 


258 


BILL   OF   MATERIAL 

(Form  7  A) 

(Form  7  A) 


BILL  OF  MATERIAL 

Deoar 

tment 

Date 

Estimate  No..                 .    _      

Required  for  ... 

Order  No.    ...      .    ..    ... 

CLASSIFICATION 
NO. 

ARTICLE 

QUANTITY 

RATE 

AMOUNT 

RECEIVED  BY 



Approvec 

by:.  

Ordered  by: 

Standard  Size  7Hi  *  8)4 


In  the  operation  of  this  design  it  should  be  kept  in  mind  that  its  purpose  is 
for  preparing  estimates  showing  all  the  material  used  in  the  manufacture  of  either 
a  special  order,  which  means  a  class  of  product  that  may  or  may  not  be  manufac 
tured  in  the  future,  as  well  as  for  standard  goods  which  will  be  constantly  manu 
factured  and  carried  in  stock.  In  the  latter  case  a  bill  of  material  should  be 
made  up  and  priced  for  every  article  that  is  carried  in  stock,  and  this  price  or 
cost  should  be  revised  from  time  to  time  as  the  cost  of  raw  material  increases  or 
decreases  in  market  price.  Otherwise  inaccuracies  would  necessarily  occur  in 
transferring  material  used  from  the  raw  material  account  to  the  departmental 
account,  as  will  be  seen  later. 

The  purpose  of  this  form  is  to  record  the  calculations  of  the  amount  of  mate 
rial  used  each  month  that  is  chargeable  to  the  several  departmental  accounts 
called  for  by  this  system.  The  total  of  the  bill  of  material  is  credited  to  the  raw 
material  or  storeroom  account,  which  should  be  charged  with  the  inventory  at 
the  beginning  of  the  period  and  with  all  purchases  made  since.  This  form  relates 
directly  to  the  Production  Report  explained  later. 


DAY   WORK   AND    PIECE    WORK 

(Form  9  C) 

This  design  presents  a  combination  Day  Work  and  Piece  Work  Report,  and 
will  be  found  useful  in  any  plant  where  the  employees  are  engaged  partly  at  a 
day  rate  and  partly  on  piece  work.  Where  this  is  not  the  case  two  separate  forms 
may  be  used,  or  Form  9  A  may  be  substituted  to  take  the  place  of  both  forms, 


DEPARTMENTAL    COST    SYSTEMS 


259 


(Form  9 C) 


Name 

TIME  REPORT 

Departm 

ent 
Oats 

Occupation  -  Clock  No  

DAY  WORK 

ORDER  NO. 

KIND 

OPERATION 

TIME 

RATE 

AMOUNT 

PIECE  WORK 

ORDER  NO. 

KFND 

OPERATION 

QUANTITY 

RATE 

AMOUNT 

Quantity  O.K, 

Price  O.K. 

Amount  O.K. 

(Standard  Size  6x6) 


as  is  explained  in  the  chapter  relating  to  the  designs  of  various  kinds  of  Time 
Reports. 

In  any  event,  every  employee  in  the  plant  should  make  out  a  Time  Report 
daily,  showing  the  nature  of  the  work  engaged  upon,  the  time  consumed,  and,  if 
practicable,  the  number  of  articles  produced.  The  number  of  the  production 
order,  previously  explained,  should  also  be  entered  on  this  report;  and  the  fore 
man  of  the  department  in  which  the  employee  is  engaged  should  make  it  his  busi 
ness  to  examine  these  reports  daily,  and  turn  them  into  the  office  at  night  or  the 
following  morning  with  his  name  signed  to  each  form.  The  management  should 
ascertain  whether  or  not  this  form  is  really  examined  or  merely  signed,  as  the 
results  at  the  end  of  the  year  bear  a  close  relation  to  this  particular  design, 
simple  as  it  may  seem.  In  the  case  of  piece  work,  a  careful  examination  should 
always  be  made  as  to  quantity,  quality,  and  price.  As  far  as  the  quantity  is 
concerned,  a  proper  safeguard  should  be  established  on  operations  connected 
with  product  that  is  not  finished  immediately  but  carried  in  stock  in  a  partly 
finished  condition  for  future  operations;  as  it  is  an  easy  matter,  particularly 
where  a  complete  cost  system  is  not  in  vogue  and  where  stock  records  are  not 
kept,  to  falsify  piece-work  reports  without  the  knowledge  of  the  management, 
foreman,  or  those  in  charge  of  making  out  pay  rolls. 

The  results  shown  by  these  reports  should  be  transferred  daily  to  the  Analysis 
of  Pay  Roll  herein  described.  Where  piece  work  is  involved,  the  quantity  should 
be  entered  in  the  several  columns  in  the  form  last  mentioned,  provided  for  the 
day's  results,  opposite  the  name  of  the  employee.  In  the  case  of  day  work  the 
number  of  hours  should  be  entered  in  these  columns,  in  lieu  of  the  quantity. 


260 


FACTORY   ORGANIZATION   AND    COSTS 


ANALYSIS   OF   PAY   ROLL 
(Form  10  J) 


(Form  10  J) 

ANALYSIS  OF  PAY  ROLL 

Department                                                                           Week  ending..          .... 

WAGES 

IBUTIC 

NAME 

CLOCK 

AMOUNT 

RATE 

TWB 

M 

T 

W 

T 

F 

8 

NO.    1 

NO. 

2 

NO. 

3 

NO. 

4 

NO. 

5 

NO. 

<5 

INDIREC 

• 

Standard  Size  12  x  16 

All  of  the  results  called  for  by  this  design  should  be  obtained  from  the  Time 
and  Piece  Work  reports  previously  explained.  The  columns  running  from  right 
to  left  are  explained  as  follows: 

Under  the  caption  "Name"  should  be  entered  the  name  of  each  employee, 
and  the  clock  number,  if  one  is  in  use,  should  be  entered  in  the  column  provided 
for  that  purpose.  At  the  end  of  each  day  the  Time  Reports  should  be  entered 
opposite  the  name  of  each  employee  in  the  column  for  that  particular  day,  and 
in  case  the  results  shown  by  the  Time  Reports  are  based  on  Piece  Work,  the  quan 
tity  should  also  be  entered,  but  a  separate  sheet  should  be  used.  The  total  for 
the  week,  in  either  time  or  quantity,  should  be  entered  in  the  total  column  in 
either  hours  or  quantity,  and  the  rate  per  hour  or  per  article  should  also  be  en 
tered  in  the  column  provided  for  that  purpose.  The  result — that  is,  the  rate 
multiplied  by  the  time  or  quantity — should  be  entered  in  the  column  headed 
"Amount  of  Wages,"  opposite  the  employee's  name. 

Under  the  caption  headed  "Distribution"  should  be  entered  the  amount  of 
each  employee's  wages,  chargeable  to  the  particular  classification  or  kind  of  goods 
on  which  he  was  engaged.  Any  time  not  chargeable  to  any  particular  class  of 
goods  should  be  entered  in  the  column  headed  "Indirect  Labor."  The  total  of 
this  distribution — that  is,  labor  chargeable  to  the  various  kinds  of  goods  manu 
factured  and  the  indirect  labor  added  together — should  equal  the  amount  of  the 
employees'  wages  for  the  week;  and  the  total  wages  of  all  the  employees  for  the 
week  should,  of  course,  equal  the  total  amount  charged  to  the  various  kinds  of 
products  and  indirect  labor. 

When  the  pay-roll  check  is  drawn  and  entered  in  the  Cash  Book  for  the  weekly 


261 

pay  roll,  the  amount  should  be  charged  in  the  Ledger  directly  to  the  pay-roll 
account;  and  at  the  end  of  the  week  or  month  a  journal  entry  should  be  made 
crediting  the  pay  roll  account  and  charging  the  various  kinds  of  products  appear 
ing  in  this  Analysis  of  Pay  Roll  as  well  as  the  indirect  labor  account.  This  entry 
will  balance  the  pay  roll  account,  and  charge  or  distribute  the  amount  of  the 
wages  to  the  proper  accounts  or  departments  for  the  period  in  question.  This 
explanation  is  made  at  this  point  in  order  that  the  preceding  remarks  relating  to 
the  object  of  the  Piece  and  Day  Rate  Reports  may  be  better  understood,  as  well 
as  the  relation  of  the  forms  previously  mentioned  to  the  general  classification  of 
products  for  the  purpose  described  in  the  beginning  of  this  chapter. 

PRODUCTION   REPORT 

(Form  11  L) 

There  are  several  methods  in  vogue  relating  to  reporting  production  of  fin 
ished  parts  departmentally  as  well  as  finished  products,  and  various  designs  of 
different  kinds  will  be  found  in  the  chapter  relating  to  this  subject. 

In  this  instance  it  is  only  intended  to  report  the  production  of  finished  prod 
uct — that  is,  goods  ready  for  market — ignoring  entirely  anything  relating  to  fin 
ished  parts  that  are  used  in  assembling  or  manufacturing  the  finished  article. 
The  form  should  be  ruled  precisely  as  presented,  except  that  the  name  or  number 
of  the  article,  according  to  the  classification,  should  be  printed  on  one  or  several 
forms,  according  to  department.  In  case  several  departments  operate  inde 
pendently — that  is,  produce  a  finished  product — a  separate  form  should  be  used 
for  each  department,  with  all  of  the  articles  appearing.  Where  the  entire  product 
passes  through  all  the  departments  and  is  delivered  to  a  stockroom  or  stock  clerk, 
one  form  will  be  sufficient. 

The  foreman  of  the  department  in  charge  of  the  manufacture  of  the  product, 
or  the  superintendent,  may  keep  this  record,  which  should  be  in  loose-leaf  form 
and  executed  in  duplicate.  The  information  can  be  obtained  from  one  of  two 
sources — namely,  from  the  Production  Orders  previously  mentioned,  or  from  the 
Time  and  Piece  Work  Reports ;  but  in  either  case  the  entries  should  be  made 
daily.  As  can  be  seen  by  reference  to  the  design,  columns  are  provided  for  the 
daily  production,  and  the  entries  should  be  made  each  day  under  the  proper  date 
opposite  the  article  produced.  The  total  should  then  be  extended  for  the  month 
in  the  column  provided  for  that  purpose.  After  all  of  the  figures  have  been  veri 
fied  the  original  should  be  sent  to  the  main  office. 

Upon  receipt  of  this  form,  properly  filled  out,  the  bookkeeper  or  cost  clerk 
should  fill  in  the  column  under  the  general  caption  "Material  Costs."  All  of  the 
information  called  for  can  be  obtained  from  the  Bill  of  Material  previously 


262 


FACTORY   ORGANIZATION   AND    COSTS 


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OLA8MFK  ATI 
TOTAL 

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DEPARTMENTAL    COST    SYSTEMS  263 

described.  The  number  of  this  Bill  of  Material  and  the  cost  or  rate  per  article- 
that  is,  for  the  article  shown  on  the  left  of  the  form — should  be  entered,  and  this 
rate  multiplied  by  the  total  number  or  quantity  of  this  particular  article  manu 
factured  for  the  month.  As  will  be  seen  by  examining  this  form,  a  number  of 
articles  should  be  entered  under  the  classification  of  manufactured  products, 
which  is  the  basis  of  this  Cost  System.  After  all  of  these  articles  have  been 
priced  and  the  amount  extended  according  to  classification,  the  total  should  be 
entered  in  the  column  headed  "Classification  Total." 

The  total  amount  for  all  classifications,  representing  the  total  amount  of 
material  used  for  the  month,  should  be  credited  through  a  journal  entry  to  the 
Storeroom  or  Raw  Material  account,  and  charged  to  the  various  kinds  of  product 
shown  in  the  column  headed  "Classification  Total."  The  effect  of  this  entry  is  to 
credit  the  Storeroom  or  Raw  Material  account  with  goods  taken  out  and  used  in  the 
manufacture  of  product  actually  finished  and  ready  for  shipment,  and  at  the  same 
time  to  charge  the  department  or  class  of  goods  with  the  cost  of  this  material. 

REGISTER   OF   ACCOUNTS    PAYABLE 

(Form  21  C) 

Although  this  form  does  not  relate  directly  to  a  cost  system  in  the  true  sense 
of  the  word,  yet  a  careful  examination  of  the  nature  of  the  design  will  show  its 
utility  in  obtaining  the  results  called  for  by  this  system.  The  usual  title  for  a 
record  of  this  description  is  "Purchase  Journal,"  but  this  name  is  not  used  in  this 
instance,  as  the  book  is  used  for  other  functions — that  is,  it  admits  of  a  more 
extensive  classification  of  accounts  and  also  makes  it  unnecessary  to  keep  an 
account  with  each  individual  from  whom  goods  are  purchased.  All  of  the  col 
umns  on  the  left-hand  side  of  the  book,  under  the  general  caption  "Credits," 
relate  to  the  terms  of  the  purchase,  and  show  from  whom  goods  were  bought 
and  when  and  how  the  account  was  paid.  The  purpose  of  the  column  headed 
"Open  Accounts"  is  for  transactions  with  creditors  with  whom  it  is  desired  to 
keep  an  open  account  in  the  Ledger.  The  column  headed  "Vouchers  Payable" 
is  intended  for  all  other  accounts  where  it  is  not  necessary  to  keep  separate  ac 
counts  in  the  Ledger.  In  the  case  last  mentioned  the  total  of  this  column  should 
be  posted  in  one  amount  at  the  end  of  the  month  to  the  credit  of  "  Vouchers  Pay 
able,"  and  as  these  accounts  are  paid,  the  date  of  payment,  together  with  the 
check  number,  should  be  entered  in  this  Register  opposite  the  proper  account  in 
the  columns  provided  for  that  purpose. 

The  items  entered  in  the  columns  headed  "Open  Accounts"  should  be  posted 
separately  from  day  to  day  to  the  credit  of  the  proper  individuals  or  company  in 
a  regular  Ledger.  If  it  is  desired  to  keep  a  Private  or  General  Ledger  and  to  have 


DEPARTMENTAL    COST    SYSTEMS 


265 


this  ledger  self-balancing,  a  controlling  account  should  be  opened  and  styled 
"Creditors'  Ledger,"  and  the  total  of  the  column  headed  "Open  Accounts"  should 
in  that  case  be  posted  to  the  credit  of  the  account  last  mentioned  in  the  General 
Ledger.  A  complete  explanation  of  this  principle  will  be  found  in  Chapter  XXVII. 

All  of  the  columns  on  the  right-hand  side  of  the  book,  under  the  general  cap 
tion  "Debits,"  relate  to  the  distribution  or  classification  of  purchases.  It  is  not 
the  intention  at  this  point  to  classify  or  head  these  columns  in  a  complete  man 
ner,  as  the  captions  or  accounts  that  appear  in  these  columns  are  merely  for  the 
purpose  of  suggesting  to  the  reader  the  proper  method  of  redesigning  a  record 
along  these  lines.  In  Chapter  XXVII  a  classification  of  accounts  according  to 
various  requirements  is  shown,  and  from  this  it  should  not  be  difficult  to  select 
a  classification  of  accounts  applying  to  any  line  of  manufacture,  and  the  reader  is 
referred  to  that  chapter  in  studying  or  using  this  design. 

It  is  deemed  sufficient  to  state  that  the  total  of  these  several  columns  should 
be  posted  at  the  end  of  the  month  to  the  debit  of  whatever  account  appears  at 
the  head  of  the  column.  In  the  case  of  the  miscellaneous  column  each  item 
should  be  posted  separately.  The  miscellaneous  column  is  intended  for  accounts 
that  are  not  sufficiently  active  to  require  a  special  column,  the  value  of  the  special 
columns  being  principally  to  save  posting  and  writing  the  name  of  the  account. 

The  two  columns  on  the  left-hand  side  of  the  book  added  together  should 
equal  the  sum  of  all  the  columns  on  the  right-hand  side  of  the  book  under  the 
caption  "Debits,"  which  means  that  the  Debits  and  Credits  should  be  equal. 

REGISTER   OF   SALES 
(Form  19  E) 


(Form  19  E) 


REGISTER  OF  SALES               For  the  mQnth  of  w     _ 

DESCRIPTION 

CLASSIFICATION 

DATE 

SALES  SnEET 
NO. 

SOLD  TO 

ADDRESS 

TERMS 

SALESMAN 

LEDGER 
FOLIO 

AMOUNT 

No.  1 

No.  2 

No.  3 

No-  4 

No.  5 

No.  6 

Standard  Size  It  x  15J£ 


The  chief  reason  for  presenting  this  form  is  to  illustrate  the  method  of  classi- 


266  FACTORY    ORGANIZATION   AND    COSTS 

fying  the  sales  according  to  the  manufactured  product.  Any  other  method  that 
will  obtain  the  same  results  may  be  used,  as  can  be  seen  in  Chapter  XXII,  which 
shows  several  designs  of  this  character. 

The  information  can  be  obtained  from  the  Sales  Sheet,  or  may  be  entered 
directly  in  this  Register  and  the  amounts  entered  under  the  proper  classification 
of  product,  the  total  amount  of  the  bill  being  entered  in  the  column  provided 
for  that  purpose. 

At  the  end  of  the  month  the  total  amount  of  the  sales  for  each  department 
or  classification  of  product  should  be  credited  to  the  proper  department  shown  at 
the  head  of  the  several  columns,  and  the  total  of  all  goods  sold  in  all  departments 
charged  to  the  Customers'  Ledger  controlling  account  if  one  is  kept;  and  if  not,  the 
individual  postings  to  the  customers'  account  is  all  that  is  necessary. 

DEPARTMENTAL   ACCOUNTS 

In  the  preceding  forms  the  method  of  obtaining  all  of  the  information  neces 
sary  to  procure  the  results  called  for  by  a  departmental  cost  system  is  ex 
plained  up  to  the  point  of  entering  the  amounts  chargeable  to  the  several 
departments  in  the  general  ledger.  The  name  of  these  accounts  and  the  num 
ber  required  must  be  determined  by  the  one  inaugurating  the  system.  All 
the  data  relating  to  departmental  accounts,  as  well  as  all  other  accounts, 
can  be  obtained  by  referring  to  the  Classification  of  Accounts  in  Chapter 
XXVII. 

In  this  particular  case  the  proper  account  and  the  method  of  closing  each  at 
the  end  of  the  inventory  period  is  as  follows: 

Raw  Material 

All  the  charges  to  this  account  should  be  obtained  from  the  Register  of  Ac 
counts  Payable  herein  described,  or  from  any  other  record  now  in  use  that  will 
furnish  the  same  information.  The  credits  to  this  account  should  be  taken 
from  the  Production  Report  explained  in  the  beginning  of  this  chapter,  and  the 
amounts  entered  each  month.  At  the  end  of  the  year  this  account  should  be 
credited  with  the  value  of  the  material  in  the  process  of  manufacture,  ex 
clusive  of  labor.  The  method  of  closing  this  account  is  to  take  the  difference 
between  the  two  sides  of  the  account,  which  is  the  theoretical  inventory,  and 
either  increase  it  or  decrease  it  to  the  amount  of  the  actual  inventory,  charg 
ing  the  difference  to  indirect  expenses,  as  shrinkage  in  materials,  or  crediting 
the  amount  of  indirect  expenses,  if  the  theoretical  inventory  exceeds  the  actual 
inventory. 


DEPARTMENTAL    COST    SYSTEMS  267 

Classification  of  Departments 

The  term  classification,  kind  of  product,  or  department  is  used  to  express  a 
classification  of  the  various  articles  manufactured,  and  does  not  relate  directly  or 
indirectly  to  any  operating  department  in  the  factory.  The  object  is  to  show 
the  profit  as  well  as  the  amount  of  sales  in  these  various  branches  of  the  business. 
For  the  information  of  those  not  familiar  with  accounting,  it  might  be  well  to 
state  that  it  is  not  possible  to  show  profits  on  an  operating  department  unless  it 
is  an  independent  factor  in  itself. 

The  results  called  for  in  these  various  departments  are  obtained  from  the 
following  sources.  The  labor  chargeable  to  each  department  is  obtained  from 
the  Analysis  of  the  Pay  Roll  previously  described,  which  is  entered  in  the  Ledger 
by  means  of  a  journal  entry  and  credited  to  the  pay  roll  account.  The  cost  of 
material  chargeable  to  these  departments  comes  from  the  Production  Report, 
which  is  also  entered  in  the  Journal  and  credited  to  the  raw  material  account  at 
the  end  of  each  month.  At  the  end  of  the  year,  or  of  any  inventory  period  when 
the  books  are  closed,  the  indirect  expenses,  which  means  the  general  expenses 
relating  to  manufacturing  exclusively,  may  be  charged  to  the  several  depart 
ments,  exclusive  of  raw  materials,  on  the  basis  of  the  amount  of  labor  charged 
to  each  department — that  is  to  say,  divide  the  expenses  by  the  labor  and  ascer 
tain  the  rate,  and  multiply  the  amount  of  labor  charged  to  each  department  by 
this  rate,  and  the  result  will  show  the  amount  of  expense  properly  chargeable 
to  that  particular  department.  All  of  the  accounts  charged  to  these  departments 
should  be  credited  to  the  accounts  styled  "Indirect  Factory  Expenses/'  which 
account  will  then  balance,  providing  the  distribution  of  the  expense  is  accurate. 

The  sales  for  each  department  should  be  posted  at  the  end  of  the  month  from 
the  Register  of  Sales  to  the  credit  of  the  proper  department.  The  difference 
between  the  inventory  at  the  beginning  of  the  period  and  the  end  of  the  period, 
as  shown  in  the  inventory  account,  should  be  charged  or  credited  to  the  proper 
department  account — that  is  to  say,  if  the  beginning  inventory  exceeds  the  end 
ing  inventory,  the  difference  should  be  charged  to  the  department  the  inventory 
relates  to;  and  if  the  reverse  is  the  case,  the  amount  should  be  credited  to  the 
department  account  and  charged  to  the  inventory  account. 

The  difference  between  the  two  sides  of  the  account  for  the  department  will 
now  show  either  the  gross  loss  or  the  gross  profit. 

The  total  amount  of  the  selling  expenses  and  administrative  expenses,  which 
means  expenses  which  do  not  relate  to  manufacturing,  should  now  be  pro-rated 
over  the  several  departments  on  the  basis  of  the  volume  of  business  done  in  all 
departments  at  the  cost  price  or  debit  side  of  the  account.  The  total  amount 


268  FACTORY   ORGANIZATION   AND   COSTS 

charged  for  selling  expenses  to  the  several  departments  should  be  credited  to  the 
account  styled  "Selling  Expenses/'  which  should  then  balance.  The  same  entry 
should  be  made  for  "Administrative  Expenses/'  which  will  then  also  balance. 

The  difference  between  the  two  sides  of  the  departmental  accounts  will  now 
show  the  net  profit  of  each  department,  which  should  be  transferred  to  the  regu 
lar  Profit  and  Loss  account,  the  total  of  which  will  represent  the  net  profit  of  the 
business. 

Inventories 

The  most  approved  method  of  treating  Inventory  Accounts  in  the  Ledger  is 
to  charge  the  beginning  inventory  to  an  Inventory  Account  separate  and  distinct 
from  the  regular  Merchandise  or  Department  account,  and  when  the  next  inven 
tory  is  taken  merely  increase  or  decrease  the  beginning  inventory  to  correspond 
with  the  actual  inventory  taken  at  the  end  of  the  period,  charging  or  crediting 
the  difference  to  the  Merchandise  Account,  or  in  this  case  to  the  several  depart 
ment  accounts. 


CHAPTER  XXXVI 

SPECIAL   ORDER    SYSTEM   ACCORDING   TO    THE    PRODUCTIVE    LABOR   METHOD 

OF    COST    FINDING 

Conditions  Governing  the  Application  of — Principles  Involved — Stock  System  Outlined — General 
Outline  of  Systems — Method  of  Ordering  Material — Reporting  Material  Received — Order  on 
Factory  to  Manufacturer — Delivery  of  Material  from  Stock  to  Factory — Time  Reporting — 
Pay  Roll — Finished  Stock — Factory  Expenditures — Billing  System — Returned  Goods  and 
Allowance — Sales  and  Cost — Cash  Receipts  and  Expenditures. 

AN  outline  of  a  method  of  obtaining  the  cost  of  production  by  general  classi 
fications  has  been  stated  in  Chapter  XXXV,  dealing  with  this  subject.  Some  of 
the  forms  and  explanations  relating  to  that  system  are  similar,  in  some  respects, 
to  certain  forms  and  remarks  contained  in  the  system  outlined  in  this  chapter, 
but  only,  of  course,  in  a  general  way.  As  has  already  been  seen,  the  system  in 
Chapter  XXXV  does  not  deal  with  the  cost  of  each  article,  but  in  this  chapter 
a  method  is  outlined  of  ascertaining  the  material  cost  and  labor  cost  of  each  par 
ticular  order  and  of  applying  the  indirect  expenses  to  the  respective  orders,  thus 
showing  the  final  cost  of  the  product  manufactured  in  complete  detail,  instead  of 
according  to  a  general  classification. 

The  term  "Special  Order"  means  orders  that  relate  to  goods  chargeable  to  a 
particular  customer  or  for  goods  to  be  carried  in  stock.  In  the  event  that  a  cus 
tomer  orders  several  different  articles  at  one  time,  and  it  is  desired  to  ascertain 
the  cost  of  each  article  so  ordered,  then  a  separate  Production  Order  should  be 
issued  in  each  instance;  but  in  the  event  that  the  order  is  of  such  a  nature  as  to 
be  unlikely  of  reproduction  or  re-order,  then  only  one  order  should  be  issued  for 
all  of  the  articles  specified  in  the  customer's  original  order. 

The  Special  Order  system  can  be,  and  frequently  is,  applied  to  factories  manu 
facturing  and  carrying  in  stock  a  definite  line  which  is  produced  continuously 
throughout  the  year,  the  order  being  used  to  regulate  production  and  to  facilitate 
the  supervision  of  the  work  so  ordered  through  the  several  operating  depart 
ments  of  the  factory.  In  all  the  explanations  and  forms  that  follow,  it  is  to  be 
understood  that  the  remarks  apply  alike  in  both  cases. 

The  intelligent  use  of  a  Production  Order  in  either  instance  mentioned  will 
in  effect  bring  about  a  condition  of  systematic  operation,  regulate  production, 
result  in  prompt  deliveries,  and  will  tend  to  produce  results  of  a  character  that 
are  unobtainable  in  any  other  manner. 

A  modern  system  of  stock  keeping,  interlocked  with  the  general  books  of 


270  FACTORY   ORGANIZATION   AND    COSTS 

account,  is  presented  in  this  chapter  and  is  based  on  actual  figures — no  estimates 
being  used  in  any  of  the  calculations — resulting  in  a  self-balancing  record. 

In  presenting  the  several  designs  relating  to  office  forms,  no  attempt  has  been 
made  to  treat  with  all  of  the  forms  relating  to  general  office  organization,  but 
rather  to  confine  the  designs  and  explanations  to  records  of  a  character  neces 
sary  for  the  operation  of  a  self-balancing  cost,  stock,  and  accounting  system. 

The  methods  herein  presented  are  intended  to  illustrate  the  best  known  meth 
ods  for  intelligently  and  accurately  compiling  an  interlocking  record,  so  as  to 
make  it  possible  to  ascertain  the  profits  of  the  various  departments,  as  well  as 
the  profits  on  each  order  or  article,  monthly,  without  taking  an  actual  inventory. 
A  general  explanation  relating  to  the  method  of  operation  is  that  the  factory  is 
charged  with  all  expenditures  relating  to  the  cost  of  production,  such  as  the 
inventory  at  the  beginning  of  the  period,  purchases,  labor,  and  all  expenses  in 
curred  in  the  operation  of  the  plant,  not  including  selling  or  administrative  ex 
penses.  These  figures  being  charged  to  the  factory  are  necessarily  included  in 
the  cost  and  charged  to  the  particular  orders;  and  the  factory  is  credited  at  the 
end  of  the  month  with  the  total  amount  of  goods  actually  sold  during  the  month 
at  the  cost  price  shown  on  each  order.  The  difference  between  the  two  sides  of 
the  Factory  Account  will  represent  the  value  at  cost  of  the  inventory  of  all  mate 
rials  finished,  in  process,  and  raw,  and  should  agree  with  an  actual  inventory, 
item  for  item,  at  any  period.  But  a  slight  difference  may  and  unquestionably 
will  occur,  due  to  shrinkage  in  material. 

A  complete  separation  or  distinction  is  made  between  the  two  principal 
branches  of  the  business — that  is,  the  manufacturing  department  and  the  sales 
department;  the  object  of  which  is  to  place  the  burden  of  responsibility,  which 
means  expense,  upon  the  department  to  which  it  relates.  It  is  true  in  many 
instances  that  this  responsibility  exists  in  theory  only,  but  even  in  such  cases  it 
is  advisable  and  practical  to  make  the  distinction  for  the  purpose  of  classification 
and  compilation  of  expenses  if  for  no  other  reason. 

The  accounts  in  the  General  or  Private  Ledger  should  be  kept  so  that  a  Profit 
and  Loss  statement  and  Balance  Sheet  may  be  prepared  showing  the  financial 
status  of  the  enterprise  at  the  end  of  each  month,  in  order  that  the  management 
may  be  able  to  ascertain  which  department  is  weakest  and  where  attention  may 
be  given  to  either  restore  or  increase  the  efficiency  of  a  particular  department. 

PURCHASE    REQUISITION 

(Form  1  A) 

This  form  does  not  relate  directly  to  either  the  cost  or  stock  keeping,  but  rather 
as  an  adjunct  calculated  to  assist  the  purchasing  agent,  and  is  intended  to  sub- 


COMPLETE   COST   SYSTEMS 


271 


(Fonn  1  A) 


PURCHASE  REQUISITION. 

DATE    . 

QUANTITY 

ARTICLE 

DATE  WANTED      | 

—  —  — 
^  • 

_—  — 

Signed:                                                                                                Approved: 

(Form  2  D)  Original 


The  A.  B.  C.  Co., 
New  York. 

No. 

octant:  -Put  this  number  on 
r  Invoice 

Address                                    PU  RCHASE  ORDER 

Terms  ._....                .      .                             _   -             Ship  via 

DATE  WANTED 

DESCRIPTION 

QUANTITY 

RATE 

You  are  h 
described 

Note:-Sen 

ereby  authorized  to  furnish  the  above  articles 
,  If  you  cannot,  please  advise  us  at  once. 
The  A.  B.C.  Co. 

d  bill  same  day  shipment  is  made.                             (purchasing  agent) 

Standard  Size  f>K  x  7% 


(Form  2  D)  Duplicate 


The  A.  B.  C.  < 
New  York. 
Name        _                                                                                   PURCHASE  C 

.0., 

RDER. 

Ship 

No  

mportant:-Put  this  number  on  your  Invoice 
via 

Address 

Terms...    _.   

DATE  WANTED 

DESCRIPTION 

QUANTITY 

RATE 

AMOUNT 

CHARGE  TO 

You  are  hereby  authorized  to  furnish  the  above  articles 
described:  if  you  cannotplease  advise  us  at  once. 
The  A.  B.C.  C 
Note:-Send  bill  same  day  shipment  is  made. 

O. 

(purchasing  agent) 

Standard  Size  7}$  x  9 


272  FACTORY   ORGANIZATION   AND    COSTS 

stitute  written  requests  in  place  of  verbal  statements.  It  is  presented  with  the 
belief  that  it  should  constitute  a  part  of  a  system  of  any  well-regulated  factory 
where  the  best  results  are  desired,  and  in  order  to  prevent  misunderstanding  and 
delays  in  connection  with  procuring  prompt  deliveries  of  raw  materials. 

The  form  should  be  made  out  by  the  foreman  of  the  operating  department 
requiring  the  materials,  or  the  stock  clerk,  and  should  be  delivered  to  the  purchas 
ing  agent  or  to  the  person  who  has  charge  of  ordering  materials  and  supplies. 
Inasmuch  as  the  form  is  simple  in  design  and  limited  as  to  its  purpose,  which 
varies  in  each  particular  case,  no  further  explanation  is  necessary  at  this  point. 
Those  desiring  more  complete  information  on  this  subject  are  referred  to  Chapter 
VII,  relating  to  forms  of  this  description. 

PURCHASE    ORDER 

(Form  2D) 

The  relation  of  the  form  last  mentioned  to  this  Purchase  Order  varies  with 
the  nature  of  the  business.  In  some  instances  it  is  advisable  to  make  out  a  sep 
arate  Purchase  Order  for  each  Purchase  Requisition  received;  while  in  other 
cases,  where  several  kinds  of  products  are  purchased  from  the  same  concern, 
several  requisitions  can  be  entered  on  one  purchase  order  to  advantage,  and  in 
such  instances  the  number  of  the  Purchase  Order  should  be  entered  on  the  Pur 
chase  Requisition  for  information  and  record. 

Upon  receipt  of  the  Purchase  Requisition,  the  purchasing  agent  or  the  one  in 
charge  should  issue  this  Purchase  Order  in  duplicate,  or  as  many  copies  as  seem 
expedient  may  be  prepared,  according  to  the  nature  of  the  business.  The  original 
should  be  sent  to  the  individual  or  company  from  whom  the  goods  are  ordered, 
and  at  least  one  copy  should  be  kept  on  file  for  the  information  of  the  one  in  charge 
of  the  buying.  The  other  copies,  if  any  are  made,  can  be  utilized  in  whatever 
manner  would  be  productive  of  the  best  results. 

REPORT   OF   MATERIAL   RECEIVED 

(Form  3E) 

The  purpose  of  this  form  is  to  obtain  an  independent  record  or  report  from 
the  receiving  clerk  or  the  individual  receiving  the  goods,  in  order  to  obtain  accu 
rate  records  for  the  Stock  System,  and  at  the  same  time  to  insure  accurate  counts 
or  measures  of  materials  and  supplies  purchased.  This  form  should  be  made  out 
in  the  factory  from  an  actual  inspection  and  count  of  the  goods  received,  without 
reference  to  the  Invoice  or  Purchase  Order,  which  should  never  be  in  the  posses 
sion  of  the  individual  filling  out  this  report.  This  is  important,  as  herein  lies  the 


COMPLETE   COST   SYSTEMS 


273 


(Form  3  E)Original 


REPORT  OF  MATERIAL  RECEIVED 

Purchase  Order  No            _^                                                                     No. 

Name                                                         _         _                 _    -              -    _ 

DESCRIPTION 

QUANTITY 

•  Charges                                             Department                            Account 

Received  by                                                                            Entered  b^_ 

— 

Standard  Size  6><  x  6% 
(Form  3  TIT  Duplicate 


F 

r 

REPORT  OF  MATERIAL  RECEIVED 

'urchase  Order  No.  No.  .   

Jame                                                                                                              _            

DESCRIPTION 

QUANTITY 

- 
PR 

-  -•  -  E 
CE 

RATE 

AMOUNT 

•  [ 



[Charges.-                     .Department-                _      .-Account.       --    

Received  by                                                          Entered  by 

Standard  Size,  6%  x  8X 


only  real  safeguard  on  purchases  and  disbursements  for  the  same,  so  far  as  being 
able  to  know,  definitely  at  least,  that  the  quantity  paid  for  has  been  received. 

This  form  should  be  executed  in  duplicate  and  both  copies  should  be  sent  to 
the  office — the  original  to  the  purchasing  agent  or  the  one  in  charge  of  the  buy 
ing,  and  the  duplicate  to  the  one  in  charge  of  the  stock  records.  The  original 
is  for  the  information  necessary  in  following  purchases  and  goods  ordered  upon 
which  partial  shipments  have  been  made.  In  the  lower  section  of  the  duplicate 
is  shown  the  charges  relating  to  transportation,  which  should  be  distributed  over 
the  purchase  price  or  first  cost  and  the  result  entered  in  the  column  headed 
"Rate,"  which  means  the  final  cost  including  transportation.  The  quantity  of 
each  article  should  then  be  multiplied  by  the  rate,  and  the  result  entered  in  the 
column  headed  "amount."  The  items  appearing  in  this  record  should  then  be 
posted  to  the  Stock  Card  for  raw  materials  in  the  column  headed  "Received," 


274 


FACTORY    ORGANIZATION   AND    COSTS 


both  as  to  quantity  and  value,  and  the  rate  should  likewise  be  entered  for  refer 
ence. 

This  report  should,  of  course,  be  compared  with  the  invoice  as  to  quantity 
and  price  by  the  bookkeeper  before  any  entries  are  made  in  the  general  books 
or  the  Stock  Records.  In  the  event  of  discrepancies  steps  should  be  taken  to 
adjust  the  differences  with  the  purchaser  in  the  usual  manner,  but  no  entries 
should  be  made  in  either  record  on  a  disputed  account  except  where  the  mate 
rial  is  used,  in  which  case  the  Purchase  Order  and  Receiving  Report  should  gov 
ern  the  entry — which  means  that  the  entry  should  be  made  for  the  quantity 
actually  received  and  at  the  price  at  which  the  articles  were  ordered,  unless  there 
is  some  good  reason  to  act  otherwise. 

STOCK    CARD — RAW   MATERIAL 

(Form  4B) 


(Form  1  B) 


STOCK  CARD 

RAW  MATERIAL                               Classif 
Maxim 
Minimi. 
Artie  e  —    _                                             _                                                                          Bin  No 

cation  No.. 

jm  

m  _           _ 

RECEIVED 

DELIVERED 

BALANCE 

Standard  Size  1x8 


The  manufacturer  of  to-day  is  becoming  more  and  more  acquainted  with  the 
value  of  a  perpetual  inventory  and  systems  of  stock  keeping;  and  although  much 
literature  has  been  published  and  widely  distributed  on  this  subject,  there  is  still 
a  tendency  to  defer  any  action  along  the  lines  of  installing  such  systems  because 
of  the  fear  that  the  detail  said  to  be  involved  might  not  justify  the  expenditure 
incident  to  the  installation  of  the  system.  The  conditions  existing  in  each  par 
ticular  case  are  so  widely  different  that  it  is  difficult  to  show  just  what  the  saving 
might  be,  admitting  at  the  outset  that  some  extra  cost  and  time  would  be  in 
volved  in  doing  something  that  is  not  done  at  present.  The  direct  bearing  that 
the  result  would  have,  in  saving  in  cost  due  to  delays,  theft  of  material,  waste 
and  defective  work,  is  a  matter  that  each  individual  will  have  to  decide  for  him 
self.  Nevertheless,  the  consensus  of  opinion  favors  the  inauguration  of  such  a 
system,  providing  a  plant  is  in  a  condition  to  admit  of  it.  Furthermore,  it  is  not 
good  business  to  carry  thousands  of  dollars  in  stock  without  any  safeguard  against 


COMPLETE   COST   SYSTEMS  275 

dishonesty  or  waste;  and  if  the  plant  is  in  such  shape  that  a  system  of  this  de 
scription  is  not  practicable,  it  means  in  reality  that  heavy  losses  are  almost  cer 
tain  to  be  of  daily  occurrence,  due  to  this  lack  of  organization. 

The  Stock  Card  presented  in  this  system  is  of  a  conventional  type,  and  is  so 
general  in  design  as  to  be  adaptable  to  almost  any  class  of  business.  The  infor 
mation  called  for  under  the  caption  "Received"  should  be  obtained  from  the 
Report  of  Material  Received,  and  should  be  posted  daily.  The  columns  under 
the  caption  "Delivered"  relate  to  the  material  that  has  been  used  in  the  manu 
facturing  departments,  and  should  be  posted  from  the  Material  Requisition 
described  in  another  section  of  this  chapter.  The  column  headed  "Balance" 
represents  the  difference  between  the  two  columns  first  mentioned,  both  as  to 
quantity  and  value.  These  balances  should  be  shown  daily  or  after  each  change 
or  entry,  in  order  to  indicate  the  condition  of  the  stock  on  hand  so  as  to  regulate 
purchases. 

A  separate  card  should  be  made  out  for  each  article  on  the  same  plan  or  prin 
ciple  that  a  separate  account  would  be  kept  with  an  individual  or  company,  and 
the  article  charged  with  the  amount  received  and  credited  with  the  amount  de 
livered.  In  the  upper  right-hand  section  appear  the  words  "Maximum"  and 
"Minimum/'  which  relate  to  the  maximum  quantity  of  the  article  desired  to  be 
carried  in  stock  as  well  as  the  minimum  amount,  the  purpose  being  to  prevent 
over-purchases  or  a  shortage  of  material  ordinarily  necessary  to  carry  in  stock. 

Inasmuch  as  this  system  provides  for  a  perpetual  inventory  and  is  calculated 
to  establish  a  check  or  safeguard  on  stock,  it  is  desirable  to  make  a  practice  of 
verifying  the  book  inventory  from  time  to  time  by  taking  off  a  list  of  certain 
articles  each  day  or  week,  and  having  the  one  in  charge  of  the  stock  take  an 
actual  inventory  of  the  material  shown  on  the  list  for  comparison  with  this  stock 
record.  Where  discrepancies  exist,  the  Stock  Record  should  be  adjusted  to  cor 
respond  with  the  actual  inventory  on  the  date  at  which  it  was  taken,  providing, 
of  course,  that  the  discrepancy  is  small  and  apparently  due  to  natural  causes; 
otherwise  an  investigation  should  be  made  and  the  reason  ascertained.  By  fol 
lowing  this  plan  a  more  accurate  inventory  will  appear  in  the  records  daily  than 
can  be  taken  at  the  end  of  the  year  when  everything  is  inventoried  at  one  time; 
and,  furthermore,  the  effect  on  the  employee  will  be  productive  of  good  results 
otherwise  unobtainable. 

PRODUCTION   ORDER   AND   COST   SHEET 

(Form  5  N) 

The  functions  of  a  Production  Order  have  already  been  explained  in  Chapter 
XXXV.  In  the  present  system  the  Production  Order  is  made  to  serve  as  a  Cost 


276 


FACTORY   ORGANIZATION    AND    COSTS 


(Form  5  N) Original 


PRODUCTION  ORDER  AND  COST  SHEET 

_______________                                  .                 Department 

No... 

19  

QUANTITY 

DESCRIPTION 

DIAGRAM 

Date  Wanted.  _.              ____               __        _    19                                    You  are   here 

by  authorized  to  manufacture 
tides  as  stated 

Complete..   _   __                       19                                   the  above  ar 

Signed 

(Superintendent) 

Standard  Size  5}(  x  8 

(Form  5  X)  Duplicate 


PRODUCTION  ORDER  AND  COST  SHEET 
Department 

No. 

._  19 

QUANTITY 

DESCRIPTION 

DIAGRAM 

Date 
Comp 
Signe 

Wanted  

.19                         ' 
19                          1 

ifou  are  hereby  authorized  to 
nanufacture  the  above  articles  as  stated. 

lete  

d 

(Superintendent) 

MATERIAL 

LABOR 

PATTERN 

QUAN. 

DESCRIPTION 

RATE 

AMOUNT 

DATE 

WORKMAN 

MRS. 

RATE 

AMOUNT 

PARTICULARS 

RATE 

AMOUNT 

TOTAL 

DRAWINGS 

Total  Material 
Total  Labor 
Total  Pattern 
Total  Drawing 
Indirect 

TOTAL  COST 

TOTAL  LABOR 

TOTAL 

4 

Standard  Size  8  x  10 


Sheet  also.  The  form  is  made  in  duplicate,  the  original  or  short  copy  being 
delivered  to  the  factory,  while  the  duplicate,  provided  with  columns  for  cost- 
keeping  purposes,  remains  in  the  office. 

All  the  information  called  for  under  the  caption  "Material"  can  be  obtained 
from  the  Material  Requisition,  and  should  be  posted  directly  to  this  order  in  the 
columns  provided  for  that  purpose  in  order  that  the  total  material  cost  of  the 
order  may  be  obtained. 

The  time  relating  to  labor  that  is  chargeable  to  this  order  should  be  entered 


COMPLETE   COST   SYSTEMS  277 

in  the  columns  provided  for  that  purpose,  which  are  deemed  sufficiently  clear  to 
render  explanation  unnecessary.  The  columns  relating  to  Patterns  and  Draw 
ings  are  merely  to  suggest  to  the  reader  the  proper  method  of  entering  charges 
on  special  orders  for  costs  of  this  description. 

After  the  material  and  labor  costs,  as  well  as  the  cost  of  patterns  and  draw 
ings,  have  been  ascertained,  the  charge  for  overhead  or  indirect  expenses  should 
be  added.  The  items  just  mentioned  added  together  will  give  the  complete  cost 
of  the  order,  including  all  expenses  relating  to  the  cost  of  production. 

The  method  of  arriving  at  the  percentage  of  indirect  expense  to  be  added  to 
each  order  is  fully  explained  in  this  chapter  under  the  caption  "Statement  of 
Factory  Expenditures,  Form  15  D,"  and  more  complete  information  describing 
all  of  the  known  methods  of  treating  indirect  expenses  is  given  in  detail  in  Chap 
ter  IV,  on  that  subject.  For  the  immediate  information  of  the  reader,  however, 
the  indirect  may  be  obtained  in  the  following  manner.  The  total  indirect  ex 
penses  as  shown  in  the  Statement  of  Factory  Expenditures,  just  referred  to,  is  di 
vided  by  the  direct  labor  or  labor  actually  charged  to  orders,  and  the  percentage 
that  is  obtained  will  necessarily  represent  the  amount  chargeable  to  each  order- 
that  is  to  say,  by  multiplying  the  amount  of  labor  charged  to  each  order  by  the 
rate  of  indirect  expenses,  the  result  will  be  the  amount  of  the  overhead  or  indirect 
expense  charge;  and  if  the  calculations  are  correctly  made,  the  total  of  all  ex 
penses  charged  to  each  order  added  together  will  equal  the  entire  amount  of 
indirect  expenses  shown  in  the  books. 

This  system  of  cost  finding  is  perhaps  the  most  conventional  of  all  systems 
in  use,  generally  speaking,  and  is  known  as  the  Direct  Labor  or  Productive  Labor 
Method.  The  principal  difference  between  this  and  other  systems  is  merely  in 
the  manner  of  distributing  indirect  factory  expenses.  Both  systems — that  is,  the 
one  explained  in  this  chapter  and  the  system  mentioned  in  the  next  chapter — are 
called  Accurate  Cost  Systems,  the  word  accurate  being  used  to  express  a  balan 
cing  system;  that  is,  a  system  the  details  of  which  can  be  verified  or  proven  with 
the  several  accounts  relating  to  costs  in  the  general  books.  However,  the  cost  of 
the  same  article,  due  to  different  methods  of  figuring,  will  vary  materially  accord 
ing  to  which  system  is  used,  although  both  systems  are  "Balancing"  and  can  be 
verified  with  the  general  books.  The  manufacturer,  therefore,  should  exercise 
careful  judgment  as  to  which  method  he  adopts. 

MATERIAL   REQUISITION 

(Form  6C) 

This  form  is  made  out  originally  by  the  foreman  of  the  department  requiring 
the  materials  or  supplies  specified,  and  in  effect  represents  an  order  on  the  stock 


278 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  6  C) 


r,                                     MATERIAL 
Article                       ^                               REQUISITION 

No. 

Date 

Order  No. 

Machine  No. 

Process 

DESCRIPTION 

COST 

ARTICLE 

SIZE 

WEIGHT 

COUNT 

RATE 

AMOUNT 

Received  by:                                                       A 

oproved  by 

tStandard.Size.4-x6) 


clerk  to  deliver  to  the  bearer  the  article  called  for  and  to  charge  the  same  to  the 
order  number  or  expense  account  specified.  After  the  material  has  been  delivered 
this  form  should  be  sent  to  the  office,  where  the  rate  and  amount  or  costs  should 
be  entered,  the  rate  being  taken  from  the  stock  card  at  the  average  cost  of  the 
article  shown  on  the  requisition,  which  average  appears  in  the  column  headed 
"Balance"  on  the  stock  card.  After  the  Requisition  has  been  priced  the  amount 
should  be  entered  in  the  column  headed  "Delivered"  on  the  proper  stock  card, 
and  the  Balance  of  Stock  changed  or  reduced  by  the  amount  delivered. 

This  form  also  relates  to  the  cost  records  just  described,  and  the  material 
should  be  charged  to  the  order  number  indicated  on  the  Production  Order  and 
Cost  Record  in  the  columns  headed  "Material."  After  this  has  been  done  the 
Material  Requisitions  should  be  filed  according  to  order  number  for  reference  and 
record. 

It  should  be  borne  in  mind  that  this  form — that  is,  the  Requisition — together 
with  the  Report  of  Material  Received,  constitutes  the  original  entry  for  the  stock 
system,  and  great  care,  therefore,  should  be  taken  to  have  these  records  complete. 
The  receiving  clerk  is  responsible  for  the  amount  received,  and  the  foremen  of 
the  several  departments  should  likewise  be  responsible  for  stock  delivered  to  these 
departments.  It  follows,  therefore,  that  the  balance  of  stock  on  hand,  as  shown 
by  these  records,  should  agree  with  the  actual  inventory,  natural  shrinkage  ex- 
cepted. 

TIME   REPORT 

(Form  9  X) 

The  utility  of  a  form  of  this  kind  cannot  be  overestimated,  when  it  is  consid 
ered  that  one  of  the  greatest  losses  in  any  business,  from  the  management  down, 


COMPLETE   COST   SYSTEMS 


279 


(Forra9X) 


N9'Vi*f/'jfx         ^  •  ?/          <\xn  / 
'ti'i'r^       ^  '  A  i  O  ^       4"i\'"^ 

TIME  EMPLOYED                                    COMMENCED 

Date 

Job  No. 

MACHINE  SHOP 

Workman  No 

Boring 

Drilling 

Grinding 

Planing 

Time  Allowed 
Tapping 

Chipping 

Facing 

Milling 

Roughing 

Premium  Credit 
Thread  ng 

Cutting  Off 

Filing 

Mounting 

Shaping 

Foreman 
Turning 

Quantity_ 

Total  Time  Rate 

c^ 

is  that  of  time.  It  would  seem  advisable,  therefore,  to  make  an  effort  at  least 
to  ascertain  the  amount  of  this  loss,  in  order  that  some  intelligent  action  may 
be  taken  to  decrease  or  reduce  it  to  a  minimum.  To  some  it  may  seem  that  a 
Time  Report  registered  on  a  clock  or  stamped  with  a  time  stamp,  showing  actual 
time  consumed,  is  impractical  and  drawing  the  line  too  fine.  It  is  a  fact,  never 
theless,  that  cost  calculations  are  usually  based  on  individual  statements  said  to 
be  true  but  made  out,  generally,  after  the  work  has  been  done.  Therefore  this 
represents  an  estimate  by  a  man  who  as  a  rule  is  not  responsible  and  in  no  way 
interested  in  the  costs. 

In  this  system  the  time  should  be  stamped  on  a  card  of  the  employee,  and 
the  order  or  job  number  entered,  as  well  as  the  machine  number  and  workman's 
number.  The  operation  upon  which  the  workman  is  engaged  should  be  checked, 
and  all  of  the  operations  should,  of  course,  be  printed  on  the  form,  when  it  is 
originally  designed  according  to  the  nature  of  the  business.  The  time  employed 
should  also  be  stamped  when  the  job  is  finished,  which  will  give  an  accurate 
account  of  the  time  consumed  on  the  order.  The  employee's  rate  should  then 
be  entered  and  the  cost  extended,  which  should  be  charged  to  the  same  order 
number  as  is  shown  on  the  Time  Report,  Production  Order,  and  Cost  Sheet  under 
the  caption  "Labor."  Where  the'  time  is  not  chargeable  to  any  particular  order, 
but  relates  to  indirect  labor  or  other  expense  items,  the  same  remarks  apply,  ex 
cept  that  these  items  are  not  charged  to  orders  but  to  indirect  expenses,  as  is 
explained  in  the  Pay  Roll  Book. 

After  all  of  the  postings  to  the  Cost  Record  have  been  made,  which  should 
be  done  daily,  the  Time  Reports  should  be  entered  in  the  pay  roll,  each  day, 
and  then  filed  according  to  order  number  or,  if  desired,  according  to  clock  num- 


COMPLETE   COST   SYSTEMS  281 

her,  until  the  week's  pay  has  been  made  up,  at  which  time  it  would  be  advisable 
to  re-assort  them  according  to  order  number. 

FACTORY    PAY   ROLL    FORM 
(Form  10  K) 

All  of  the  information  called  for  in  the  several  columns  appearing  in  this 
design  can  be  obtained  from  the  Time  Reports  previously  described.  The  pur 
pose  of  this  form  is  to  show  the  time  of  each  employee  daily  for  pay  roll  purposes, 
and  at  the  same  time  to  distribute  the  time  at  the  end  of  the  week  in  order  to 
ascertain  the  amount  chargeable  to  expense  accounts,  such  as  indirect  labor, 
supervision,  power,  maintenance,  etc.,  and  in  order  to  indicate  the  exact  amount 
charged  to  orders,  which  should  be  entered  in  the  column  headed  "Direct."  All 
of  these  columns  added  together  should  equal  the  amount  of  each  employee's 
pay,  and  the  total  of  the  pay  roll  should,  of  course,  equal  the  distribution  of  the 
pay  for  all  employees.  At  the  end  of  the  week  after  paying  off,  the  total  amount 
of  this  distribution  should  be  charged  to  the  several  accounts  shown  at  the  head 
of  the  columns  under  the  caption  "Distribution,"  and  the  amount  credited  to 
pay  roll,  which  account  should  be  charged  through  the  Cash  Book  with  the  amount 
of  the  check.  If  desired,  however,  this  Journal  entry  or  credit  to  the  Pay  Roll 
account  can  be  made  at  the  end  of  the  month  for  all  of  the  pay  rolls  together, 
which  would  reduce  the  number  of  entries.  The  result,  of  course,  will  be  the 
same,  and  will  balance  the  Pay  Roll  account.  The  object  in  keeping  the  Pay 
Roll  account,  instead  of  entering  the  distribution  in  the  Cash  Book,  is  to  show 
the  amount  of  the  pay  roll  from  week  to  week,  month  to  month,  etc.,  on  one 
account. 

The  Pay  Roll  form  presented  herewith  is  executed  in  duplicate — that  is,  a 
short  copy  is  intended  to  be  used  where  the  employees  are  seldom  changed,  and 
is  for  the  purpose  of  preventing  the  necessity  of  rewriting  the  names  each  week. 
The  second,  or  duplicate  sheet,  is  the  actual  Pay  Roll,  and  a  separate  sheet  is 
used  each  week;  while  the  first  sheet  only  represents  a  list  of  the  employees,  the 
names  not  appearing  on  the  second  copy.  If  desired,  only  the  second  copy  may 
be  used  and  the  names  rewritten  weekly. 

STOCK    CARD FINISHED    PRODUCT 

(Form  12  B) 

The  functions  of  this  card  are  identical  with  the  Stock  Card  for  Raw  Mate 
rial,  described  in  this  chapter,  but  the  information  is  obtained  from  a  different 
source.  For  the  information  of  the  reader  it  might  be  well  to  state  that  this 
form  is  intended  for  articles  carried  in  stock,  and  does  not  relate  directly  or  indi- 


282 


FACTORY   ORGANIZATION   AND    COSTS 


(Form  12  B) 


STOCK  CARD 

FINISHED  PRODUCT 
Classificatio 
Maximum_ 
Art  cle                                                                                                             .Minimum 

n  No 

DATE 

PRODUCTION 

SHIPMENTS 

BALANCE 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

QUANTITY 

RATE 

AMOUNT 

Standard  Size  1x6 


rectly  to  goods  that  are  manufactured  on  special  order  and  shipped  immediately 
for  a  particular  customer. 

A  separate  card  should  be  used  for  each  article  manufactured  and  carried  in 
stock.  The  information  called  for  under  the  caption  "Production"  should  be 
taken  from  the  Production  Order  and  Cost  Sheet  as  each  order  is  completed, 
the  Cost  Sheet  being  filed  in  a  separate  file  for  finished  orders.  The  Sales  Sheet 
or  record  of  goods  actually  sold  should  be  posted  to  this  card  under  the  caption 
"Shipments"  in  the  columns  provided  for  that  purpose,  the  posting  being  done 
daily.  The  column  headed  "Balance"  represents  the  difference  between  the  first 
two  columns  and  shows  the  balance  of  stock  on  hand  as  well  as  the  quantity  and 
cost  and  the  average  cost  per  unit  or  rate.  In  this  respect  the  reader's  attention 
is  directed  to  the  fact  that  all  of  the  columns  headed  "Amounts"  represent  the 
cost  and  not  the  selling  price,  which  has  nothing  to  do  with  the  stock  records. 
Where  it  is  desired  to  show  the  profit  on  each  article  in  the  finished  stock  record 
by  indicating  the  selling  price  as  well  as  the  cost  price  of  goods  sold,  forms  are 
shown  in  Chapter  XVI,  representing  various  designs  of  stock  records.  This  inven 
tory  or  stock  record  may  be  verified  from  time  to  time  in  the  same  manner  that 
the  Raw  Material  records  are  verified. 

STATEMENT   OF   FACTORY   EXPENDITURES 

(Form  15  D) 

The  results  obtained  from  the  forms  presented  in  this  system,  if  properly  en 
tered  in  the  general  books,  can  be  expressed  in  a  form  similar  to  this  one,  which 
will  show  the  operations  of  the  factory  as  well  as  the  inventory  at  the  end  of  the 
period.  The  method  of  preparing  this  statement  is  identical  with  that  of  prepar 
ing  a  trial  balance,  but  the  accounts  are  grouped  so  as  to  show  the  amount  of 


COMPLETE   COST   SYSTEMS 


283 


(Form  15  D) 


STATEMENT  OF  FACTORY  EXPENDITURES 

ACCOUNT 

CURRENT   MONTH 

CURRENT  FISCAL  YEAR 
TO  DATE 

AMOUNT 

TOTAL 

AMOUNT 

TOTAL 

|  Material 

Direct  Labor 

Indirect  Expense: 

Labor 

Supervision 

Supplies 

Light,  Heat  and  Power    • 

Maintenance 

Insurance 

Taxes 

Telegraph  and  Telephone 

Printing,  Postage  and  Stationery 
Salaries  of  Factory  Clerks 

Incidentals 

Depreciation                                                              • 

Total  Factory  Expenditures 

Inventory  (Beginning  of  Period) 

Total 
Cost  of  goods  sold 

Inventory  (End  of  Period) 

Standard  Size  8X  * 


direct  labor  and  material  purchased,  as  well  as  the  total  indirect  expenses  in 
analytical  form  for  both  the  current  month  and  the  fiscal  year  to  date — that  is 
to  say,  for  two  or  three  months,  as  the  case  might  be,  depending  upon  the  time 
elapsed  since  the  beginning  of  the  year.  The  indirect  expenses  for  the  month, 
as  well  as  for  the  year  to  date,  should  be  divided  by  the  direct  labor  for  the 
respective  period,  in  order  to  ascertain  the  per  cent,  of  indirect  expenses  to 
direct  labor,  so  as  to  be  able  to  charge  the  proper  burden  to  each  order  as 
previously  explained.  The  total  expenditures — that  is,  material,  direct  labor, 
and  indirect  expenses,  added  to  the  inventory  at  the  beginning  of  the  period,  less 
the  cost  of  the  goods  sold  during  the  period,  will  equal  the  value  of  the  inventory 
at  the  end  of  the  period. 

All  the  accounts  appearing  in  this  schedule  should  be  kept  in  the  General 
Ledger,  unless  it  is  not  desired  to  keep  accounts  in  analytical  form  as  listed  under 
indirect  expenses  in  this  schedule.  In  such  a  case  the  three  accounts  appearing 
at  the  beginning  of  the  schedule,  or  one  account  called  "Factory,"  would  answer 
the  purpose;  but  it  would  be  necessary  to  dissect  or  analyze  this  account  item 
for  item  if  a  statement  such  as  is  herein  presented  is  desired.  Assuming  that  the 
accounts  will  be  kept  according  to  this  schedule,  another  account  not  listed  should 
be  opened  in  the  Ledger — namely,  "Factory,"  and  all  of  the  accounts  shown  in 


284  FACTORY   ORGANIZATION   AND    COSTS 

this  schedule  should  be  transferred  to  this  account  at  the  time  the  books  are  closed. 
The  inventory  at  the  beginning  of  the  period  is  carried  in  the  Factory  account, 
and  no  other  inventory  of  any  description  appears  in  any  of  the  other  accounts. 
The  cost  of  goods  sold  during  the  month  should  be  credited  to  the  Factory  ac 
count,  and  the  difference  between  the  beginning  inventory  and  all  of  the  goods 
purchased  and  expenses  incurred  during  the  period  as  shown  in  this  schedule,  will 
represent  the  inventory  at  the  end  of  the  period  if  the  costs  are  correct. 

This  schedule  does  not  provide  for  showing  the  expenses  departmentally,  or 
any  of  the  percentages  relating  to  these  departments,  as  this  system  is  intended 
for  the  use  of  a  small  plant;  but  other  designs  showing  this  information  in  vari 
ous  forms  will  be  found  in  Chapter  XIX,  explaining  forms  of  this  character. 

BILLING    SYSTEM 

(Form  17  A) 

As  the  basis  of  this  system  is  the  cost  of  sales,  which  means  the  cost  of  goods 
sold,  this  form  or  one  similar  in  design  is  absolutely  necessary;  and  from  experi 
ence  gained  with  all  kinds  of  conditions  in  factories  and  costs  this  has  been  found 
the  most  practical  of  all. 

In  this  system  the  form  is  executed  in  triplicate,  but  as  many  copies  as  de 
sired  may  be  made  out.  The  original  constitutes  the  bill  and  is  sent  to  the  cus 
tomer.  The  triplicate  represents  the  Sales  Sheet,  and  differs  from  the  original 
only  in  the  respect  that  the  cost  price  of  the  goods  sold  is  entered  in  the  column 
provided  for  that  purpose,  so  as  to  obtain  the  necessary  information  to  show  the 
profit  and  inventory  according  to  the  plan  outlined.  The  duplicate  is  sent  to 
the  shipping  clerk. 

The  cost  price  can  be  obtained  from  one  of  two  sources — from  the  Production 
Order  and  Cost  Sheet  in  the  case  of  special  orders,  and  from  the  Stock  Card  for 
Finished  Products  where  the  goods  sold  are  taken  out  of  stock.  The  Sales  Sheet 
should  be  numbered  consecutively  and  registered  in  the  Register  of  Sales  and 
Costs  described  later. 

CREDIT    CERTIFICATES 

(Form  ISA) 

This  form  is  the  reverse  of  the  billing  system  just  described,  and  its  purpose 
is  to  issue  a  credit  memorandum  to  customers  for  goods  returned.  The  object 
of  using  the  duplicate  is  to  procure  a  copy  of  the  certificate  sent  to  the  customer, 
and  to  provide  for  entering  the  cost  price  and  the  selling  price  of  goods  returned 
for  the  information  of  the  individual  keeping  the  Stock  Record  of  Finished  Prod 
uct;  and  also  to  deduct  the  amount  of  returns  from  the  proper  sales  accounts  to 
be  kept  according  to  this  system. 


285 


(  Form  17  A )  Original 


Sold  to. 
Address. 


A.  B.  CO. 

MANUFACTURERS  OF 

STOVES,  RANGES  AND  FURNACES 

New  York. 


DESCRIPTION 


SELLING   PRICE 


CLASSIFICATION 


RATE 


AMOUNT 


No.  of  Pkgs.. 

Ship.  Wt 

Frt.Rate 

Pkg.  Chg.    _ 


Shipped  to  ._ 

Via 

.  B/\-  in  name  of. 


Date  Shipped 


.  By  Frt.- 

By  Exp. 

.  Prepaid. 


Standard  Size  8  x  8 


(Form  17  A)'Duplicate 


Standard  Size  6&  x.8 


280 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  17  A)  Triplicate 


COST   PRICE 


Standard  Size  8  z  9V 


(Form  18  A)Orignal 


THE  A.B.C.  CO. 

Business NEW  YORK 

Salesman M 

Favor  of ._.  9RE_DIT  ?ER_T^L9AJE 

Address 

ARTICLE CREDIT  ALLOWED 

DESCRIPTION  [     QUANTITY        RATE    II       AMOUNT 

Approved:  Correct: 

Standard  Size  7  x  fft 
(form  18  A)  Duplicate 

Business THE  A-B.  C.  CO.  Date 

Salesman NEW  YORK  No 

Favor  of CREDIT  CERTIFICATE 

Address 

ARTICLE  ~  SELLING  PRICE  COST  PRICE 

DESCRIPTION  1       QUANTITY       I     RATE      |          AMOUNT  |    RATE    ]  AMOUNT 

Approved:  Correct: 


Standard  Size  7  x  10 


COMPLETE   COST   SYSTEMS 


287 


This  form  should  not  be  issued  until  a  receiving  report  has  been  received 
showing  that  the  goods  have  actually  been  returned;  and  in  that  case  the  clerk 
in  charge  of  the  Finished  Stock  records  should  add  the  amount  to  the  Stock  Card 
for  the  article  returned,  either  in  the  production  column  in  black  ink,  or  as  a  de 
duction  in  red  ink  in  the  shipment  column,  and  increasing  the  balance  in  either 
case. 

The  duplicate  Credit  Certificate  should  be  entered  in  the  back  part  of  the 
Register  of  Sales  and  Costs;  and  the  total  returns  and  allowances  for  the  month, 
both  at  selling  price  and  cost  price,  should  be  deducted  from  the  sales  before 
posting  to  the  Ledger  at  the  end  of  the  month. 


REGISTER  OF  SALES  AND  COSTS 
i                                                                                                                                            For  the  Month  of  ..19...J 

SALES 

COST  OF  SALES                     ™%. 

DATE             SALES 
DATE         SHEET  NO. 

NAME 

TERMS 

SALESMAN  !  FOLIO    ,*C"»MU            A                   B                  C                   > 

V                    B                    C             FACTORY       AMOUNT      < 

F  —  - 

Standard  Size  It  x  19 


The  object  of  this  form  is  to  register  the  Sales  Sheet  previously  described, 
in  order  to  classify  the  sales  at  the  selling  price  and  cost  price  for  the  month. 
The  total  amount  of  the  sales  should  be  entered  in  the  "Accounts  Receivable" 
column  and  distributed  in  the  other  columns  according  to  the  classification  of 
sales.  The  cost  price  or  amount  of  the  bill  should  be  entered  in  the  columns 
under  the  general  caption  "Cost  of  Sales,"  according  to  the  kind  of  product,  in 
the  columns  provided  for  that  purpose,  and  the  total  entered  in  the  column  headed 
"Factory" —the  "Factory"  column  representing  the  total  cost  of  the  order  or 
sales.  The  difference  between  this  column  and  the  column  headed  "Accounts 
Receivable"  should  be  entered  in  the  columns  headed  "Gross  Profit,"  which 
shows  the  profit  on  each  order  as  well  as  the  total  profit  for  the  month. 


288  FACTORY   ORGANIZATION   AND   COSTS 

At  the  end  of  the  month  the  books  should  be  added  and  all  totals  entered  in 
ink,  after  the  distribution  has  been  proved  with  the  total  column  and  the  profit 
column.  The  result  should  be  posted  to  the  General  Ledger,  to  the  credit  of  the 
proper  department,  at  the  selling  price,  and  the  cost  price  should  be  charged  to 
the  proper  departments  and  credited  to  the  factory  account.  It  is  to  be  under 
stood,  of  course,  that  the  individual  sales  at  the  selling  price  are  to  be  debited 
to  the  customer.  The  column  headed  "Profit"  should  not  be  posted. 

REGISTER   OF   ACCOUNTS    PAYABLE 

(Form  21  C) 

For  explanation  see  "Departmental  System,"  Chapter  XXXV. 
Also  explanation  of  "Forms,"  Chapter  XXIV. 

REGISTER    OF   RECEIPTS   AND   DISBURSEMENTS 

(Form  23  B) 

In  this  design  is  presented  a  form  of  Cash  Book  that  is  entirely  new  to  most 
business  men  and  bookkeepers,  for  the  reason  that  it  is  not  in  what  might  be 
called  general  use,  but  has  been  used  with  great  success  in  many  instances  and  is 
in  reality  a  conventional  form. 

On  the  left-hand  side  of  the  book,  under  the  caption  "Cash  Received,"  a 
column  is  provided  for  all  amounts  received  from  customers,  and  a  miscellaneous 
column  in  which  all  other  entries  can  be  made.  If  it  is  desired,  various  special 
columns  may  be  added  under  this  general  caption  "Gross  Amount,"  according 
to  the  requirements  of  the  particular  business.  The  columns  in  question,  how 
ever,  relate  to  the  gross  amount  covered  by  the  remittance,  and  not  necessarily 
the  amount  of  the  check.  For  instance,  a  customer  pays  a  bill  amounting  to 
$100.00,  but  first  deducts  5  per  cent.,  or  $5.00,  for  discount,  the  check  being  for 
$95.00.  This  would  be  entered  in  the  Customer's  Ledger  column  as  $100.00,  and 
in  the  discount  and  allowance  column  the  $5.00  would  be  entered,  and  the  bal 
ance  of  $95.00  entered  in  the  net  cash  column.  At  the  end  of  the  day,  when  the 
deposit  is  made  up,  the  net  cash  column  would  be  footed  and  the  amount  of  the 
deposit  entered  in  the  column  headed  "Deposits"  in  the  proper  Bank  column, 
if  more  than  one  bank  account  is  kept.  The  same  explanation  will  apply  to 
the  miscellaneous  column  that  is  given  in  the  case  of  the  Customer's  Ledger 
column. 

The  object  of  keeping  a  separate  ledger  column  for  the  Customer's  Ledger  is 
to  make  the  General  Ledger  self-balancing  by  having  an  account  in  the  General 
Ledger  with  the  Customer's  Ledger,  which  can  be  done  by  charging  the  balance 
due  from  customers  to  this  account  at  the  time  the  account  is  started,  and  sub- 


COMPLETE   COST   SYSTEMS 


289 


Form  No.  23  B. 


REGISTER    OF    EECEIPTS    &    DISBURSEMENTS 

CASH         KECE1VED 

BANK     ACCOUNTS 

Date 

Received    from 

?r 

Gross    Amouuts 

Deductions 

Net  Cash 

First  National  Bank 

C  J 

Mi«,.ll.«o... 

W»^M 

Interest 

Amount 

DepoelU 

Cheque 

No. 

. 

Standard  Size  14  i  H 


Form  No.  23  B. 


For  the  month  of. 

-    -                      -                                  .18 

CASH        D1SBUESEMENT8 

Date 

Paid    To 

Ledger 
Folio 

Gross    Amounts 

Deductions 

Udjer 

l-.m:,,- 

Ui>cell.iieou> 

DilcoQDt 

StauJar.l  Size  14  j[  14 


290  FACTORY    ORGANIZATION   AND    COSTS 

sequently  charging  all  sales  and  crediting  all  cash  received  from  customers  to  this 
account,  as  provided  for  in  this  Cash  Book. 

The  same  explanation,  relative  to  the  "Cash  Received"  column,  applies  to  all 
of  the  headings  appearing  on  the  right-hand  side  of  the  book  under  the  caption 
"Cash  Disbursements,"  as  in  the  former  case;  but  each  check  drawn  is  entered 
in  the  check  column  in  the  proper  Bank  section,  if  more  than  one  bank  account 
is  kept,  the  gross  amount  being  extended  as  well  as  any  deduction  in  the  columns 
provided  for  that  purpose.  The  gross  amounts  added  together,  less  the  deduc 
tions,  should  equal  the  amount  of  the  check  column,  or  actual  cash  paid  out. 

All  posting  to  ledgers  should  be  made  in  the  usual  manner.  The  reader  will 
observe  that  this  Cash  Book  is  not  designed  for  currency  payments,  all  such 
amounts  being  handled  through  a  petty  cash  fund,  by  drawing  a  check  and  charg 
ing  the  same  to  petty  cash,  reimbursing  this  fund  from  time  to  time  for  the  amount 
actually  paid  out,  which  will  then  increase  the  petty  cash  balance  to  the  original 
amount  for  which  the  first  check  was  drawn.  This  is  the  best  method  of  handling 
currency  payments  and  the  general  cash  as  well,  and  is  undoubtedly  the  only  safe 
method  of  handling  a  record  of  this  description. 


See  Chapter  XXIX. 


INVENTORY   OF   MATERIAL 
(Form  45  B) 


STATEMENT   OF    PROFIT   AND    LOSS 
(Form  53  B) 

See  Chapters  XXXI  and  XXXVII. 

BALANCE    SHEET 
(Form  55  A) 

See  Chapters  XXXI  and  XXXVII. 


CHAPTER  XXXVII 

SPECIAL    ORDER    SYSTEM    ACCORDING   TO    THE    PROCESS    OR    MACHINE    COST 

METHOD    OF   COST    FINDING 

Conditions  Governing  Use — Basic  Principles  Involved — Distribution  of  Power  Costs — Machine 
Costs  per  Hour — Distribution  of  Indirect — Treatment  of  Depreciation,  Repairs,  Insurance — 
Interest  on  Investment — Floor  Space  and  Machine  Charges — Application  of  Machine  Rate  to 
Orders — Use  of  Material — Requisitions  and  Time  Reports — Pay  Roll — Process  Cost  Records — 
Accuracy  and  Simplicity  Combined — Preparation  of  Profit  and  Loss  Statements  and  Balance 
Sheet. 

THE  essential  difference  between  this  system  and  the  one  described  in  Chapter 
XXXVI  consists  of  entirely  reversing  the  basis  of  cost  finding  by  charging  all 
expenditures,  except  material,  against  a  particular  machine  or  group  of  machines 
of  the  same  kind,  or  against  a  particular  operation  or  process.  The  object  is  to 
obtain  the  total  expense  chargeable  to  the  machines  or  processes,  as  well  as  the 
actual  working  hours  of  the  machine  or  process  during  the  month,  so  that  the 
actual  process  cost  per  hour  can  be  obtained.  Where  it  is  possible  to  inaugurate 
such  a  system,  more  accurate  results  will  be  procured  than  by  the  method 
described  in  the  previous  chapter,  because  in  this  system  it  is  possible  to  charge 
a  greater  part  of  the  general  or  overhead  expenses  against  the  process  than  by 
the  other  method,  which  necessarily  reduces  the  amount  of  the  indirect  expense 
to  be  pro-rated  on  a  more  or  less  arbitrary  basis  over  the  production.  In  this 
system  such  expenses  relating  to  manufacturing  as  cannot  be  identified  with  a 
particular  process  are  distributed  among  the  various  machines  or  operations  on 
the  basis  of  the  amount  of  labor  charged  to  each,  or  according  to  the  number  of 
hours;  but  in  any  case  the  amount  of  this  expense  is  so  reduced  by  this  principle 
of  cost  finding  as  to  be  unimportant. 

As  an  illustration  of  the  expenses  that  are  charged  or  included  as  indirect 
according  to  the  former  method,  and  which  according  to  this  method  become 
direct  charges  to  the  process  and  product,  may  be  mentioned  such  items  as  power, 
maintenance,  depreciation,  supplies,  insurance,  rent  or  the  equivalent.  As  to  the 
manner  of  identifying  the  items  mentioned  with  the  process,  this  will  be  explained 
later,  it  being  desired  at  this  point  to  merely  show  the  difference  in  principle  be 
tween  the  two  methods.  The  reader  might  infer,  since  many  of  the  forms  used 
in  the  two  systems  are  similar  in  design,  that  the  systems  in  both  cases  were  also 
the  same.  In  this  respect  it  might  be  well  to  say  that  the  same  forms  were  used 
as  far  as  possible  in  order  to  more  clearly  illustrate  the  actual  difference  of  the 


292  FACTORY   ORGANIZATION   AND    COSTS 

two  in  reality;  and  many  other  designs  could  have  been  used,  as  the  reader  will 
observe  from  the  collection  of  forms  in  another  part  of  this  work. 

By  referring  to  the  forms  shown  in  both  cases,  it  will  be  seen  that  the  Produc 
tion  Order  and  Cost  Sheet  and  Pay  Roll  are  considerably  different  in  design,  and 
that  in  the  former  system  the  Process  Cost  record  did  not  appear,  nor  did  the 
record  showing  power  cost  and  distribution.  Otherwise  all  of  the  forms  used  in 
the  two  systems  are  almost  identical,  and  were  purposely  made  so. 

In  this  system  a  better  description  will  be  found  of  how  the  bookkeeping 
forms  are  to  be  used  and  the  several  financial  statements  prepared;  but  the 
other  forms,  used  in  the  previous  system,  will  not  be  explained  as  fully  as  here 
tofore,  as  it  would  mean  an  unnecessary  duplication  of  words.  Remarks  will  be 
made  only  where  the  form  is  affected  by  the  change  in  principle. 

The  reader's  attention  is  called  to  the  fact  that  this  system  is  not  presented 
with  the  intention  of  treating  with  any  particular  kind  of  business,  but  merely 
to  set  forth  a  principle  and  exhibit  designs  purposely  made  general  in  character, 
so  that  these  can  be  applied  with  slight  changes  to  any  line  of  business  where 
these  conditions  exist  and  consequently  where  this  principle  can  be  used.  It  is 
not  the  purpose  of  this  work  to  describe  each  line  of  business,  as  that  would  be 
practically  impossible  under  the  circumstances;  nor  is  it  intended  to  illustrate 
any  particular  kind  of  business,  as  that,  on  the  other  hand,  would  tend  to  con 
fuse  rather  than  enlighten.  For  this  reason  the  condition  involved  under  which 
certain  principles  may  be  applied,  regardless  of  the  technique  or  details  of  any 
one  line  of  business,  is  the  basis  of  this  work.  And  inasmuch  as  a  large  variety 
of  forms  for  each  particular  purpose  will  be  found  herein,  it  should  not  be  difficult 
for  any  one  to  select  from  these  designs  those  most  suited  to  the  details  of  the 
particular  case,  making  such  changes  as  to  headings  and  increasing  or  reducing 
the  number  of  columns  in  these  forms  at  the  time  the  system  is  devised. 

PURCHASE    REQUISITION 

(Form  1  A) 

PURCHASE    ORDER 

(Form  2  B) 

REPORT    OF   MATERIAL    RECEIVED 

(Form  3  E) 

STOCK    CARD RAW   MATERIAL 

(Form  4  B) 

For  instructions  as  to  the  manner  of  operating  these  forms  in  connection  with 
obtaining  the  results  called  for  by  this  system,  the  reader  is  referred  to  the  ex- 


COMPLETE   COST   SYSTEMS 


293 


planation  given  in  the  preceding  system  in  Chapter  XXXVI,  and  also  the  de 
scription  of  these  various  forms  appearing  in  Chapters  VII,  VIII,  IX,  and  X, 
respectively. 


PRODUCTION    ORDER   AND    COST    SHEET 

(Fornv  o  P) 

(Form  5  P)  Original 


To 

Date  Completed 


PRODUCTION  ORDER  &  COSTS 


Date  Issued.. 
Date  Wanted 


DESCRIPTION 


Staudard  Sire  5^  x  8>i 


(Form  5  P)  ftuplieats 


To 

PRODUCTION   ORDER  AND  COSTS       Date  |ssued 

Date  Completed 

Date  Wanted 

DESCRIPTION 

DATE 

OPERATIONS 

NO.1 

NO.2 

NO.  3 

NO.4 

N0.5 

NO.6 

NO.7              NO.  8              NO.9 

NO.  10 

TOTAL  TIME 
COST  PER  HOUR 
PROCESS  COST 

DATE 

MATERIAL  USED 

SUMMARY 

DESCRIPTION 

QUANTITY 

PRICE 

AMOUNT 

ANALYSIS 

AMOUNT 

Material 
Process  Cost 
Total  Cost 
Quantity 
Price 
Selling  Price 
Gross  Profit 

Stamlard  Size 


As  many  copies  as  may  be  required  can  be  made  at  the  time  this  form  is  exe 
cuted.  In  this  instance  only  two  forms  will  be  used — a  short  copy  showing  the 
kind  of  goods  to  be  manufactured,  without  showing  any  of  the  information  ap 
pearing  on  the  bottom  of  the  other  form.  The  short  copy  should  be  sent  to  the 


294  FACTORY    ORGANIZATION   AND    COSTS 

foreman  of  the  department  in  which  the  goods  are  to  be  manufactured  for  his 
information,  and  also  that  the  order  number  may  be  known  to  the  employees 
engaged  on  this  work,  to  facilitate  reporting  time. 

The  duplicate  should  remain  in  the  office,  and  is  intended  for  the  purpose  of 
ascertaining  the  time  in  hours  chargeable  to  this  order  according  to  each  opera 
tion  or  process.  The  posting  should  be  made  daily  from  the  time  reports  of  the 
employees  engaged  on  this  order,  and  the  time  reports  must,  of  course,  show  not 
only  the  order  number  but  the  operation  as  well.  It  makes  no  difference  which 
employee  works  on  this  order  or  what  his  rate  may  be,  as  this  has  nothing  to  do 
with  a  cost  system  of  this  character.  All  that  is  necessary  is  to  enter  the  num 
ber  of  hours  for  each  operation  or  machine. 

At  the  end  of  the  month  the  total  time  appearing  in  each  operation  column 
should  be  ascertained,  and  the  process  or  machine  rate  entered.  This  can  be 
obtained  from  the  Process  or  Machine  Cost  record,  to  be  explained  later.  The 
total  number  of  hours,  multiplied  by  the  rate  per  hour  of  each  operation,  will  give 
the  process  or  machine  cost  chargeable  to  the  order,  according  to  operation  or 
machine.  The  total  of  these  operations  added  together  will  give  the  total  cost  of 
the  operations  chargeable  to  this  order,  which  will  include  indirect  or  overhead 
expenses,  as  will  also  be  explained  under  the  caption  "Process  Cost  Record " 
(Form  13  L)  in  this  system. 

The  cost  of  the  material  used  should  be  entered  on  this  order  from  the  Mate 
rial  Requisitions  in  the  same  manner  as  in  the  preceding  system.  The  total  cost 
of  this  material  should  be  entered  on  the  right  of  the  form  under  the  caption 
"Summary,"  and  the  total  process  or  machine  cost  shown  in  the  upper  section  of 
the  form,  added  to  this,  gives  the  final  cost  of  the  order  without  any  addition  or 
subtraction  for  expenses  or  any  other  item. 

This  Cost  record  should  then  be  transferred  to  a  file  for  completed  orders,  after 
having  been  entered  on  the  Sales  Sheet  in  the  "Cost"  column,  or  else  in  the  Fin 
ished  Stock  record,  if  the  article  is  manufactured  for  stock.  This  transfer  is  ex 
plained  more  fully  in  the  previous  system. 

MATERIAL   REQUISITION 

(Form   6C) 

All  of  the  remarks  relating  to  this  form  as  explained  in  the  preceding  system, 
together  with  the  explanatory  matter  appearing  in  Chapter  XII  on  this  subject, 
apply  in  this  case  also,  except  that  certain  supplies  chargeable  to  a  process  or 
machine  are  taken  from  this  requisition,  which  is  summarized  according  to  pro 
cess  or  machine  at  the  end  of  each  month,  and  entered  in  the  Process  or  Machine 
Cost  records  as  supplies,  according  to  the  operation  chargeable. 


COMPLETE   COST   SYSTEMS 


295 


TIME    REPORT 
(Form  9  X) 


(Form  9  X) 


For  a  full  explanation  of  this  form  the  reader  is  referred  to  the  system  just 
described,  as  the  same  form  is  used  in  this  case.  Attention  is  called,  however,  to 
the  fact  that  in  this  instance  the  time  is  charged  to  the  order  only  so  far  as  hours 
and  minutes  are  concerned,  no  amounts  or  labor  costs  appearing  on  the  Cost 
Sheet  for  separate  orders.  The  labor  cost  shown  by  these  Time  Cards  is  summar 
ized  according  to  process  or  machine  number. 

Where  several  machines  of  the  same  kind  are  in  operation  they  may  be  grouped 
together,  so  far  as  costs  are  concerned,  and  the  total  labor  cost  shown  by  these 
Time  Reports  as  chargeable  to  a  process  or  machine  entered  at  the  end  of  the 
week  or  month  on  the  Machine  or  Process  Cost  record,  charging  the  amount  to 
the  proper  machine  number  or  group  of  machines  or  processes  opposite  labor. 
The  total  number  of  operating  hours  shown  by  all  of  these  Time  Reports  repre 
sents  the  same  number  of  hours  and  minutes  charged,  separately,  to  each  order. 
After  this  has  been  done  the  Time  Reports  may  be  filed  in  any  way  that  is  found 
most  convenient,  the  entries  having  been  made,  of  course,  in  the  Pay  Roll  book 
daily,  so  as  to  ascertain  the  amount  of  wages  due  to  each  employee.  This  distri 
bution  of  time,  however,  must  be  accurate,  as  the  total  amount  charged  in  these 
cost  records  against  the  several  operations  must  correspond  with  the  total  amount 
of  the  Pay  Roll  for  the  week  or  month,  which  is  entered  in  the  distribution  column 
showing  the  direct  or  productive  labor.  This  is  important  if  accurate  results  are 
to  be  obtained  and  a  balancing  system  inaugurated. 


COMPLETE   COST   SYSTEMS  297 

PAY   ROLL 

(Form  10  K) 

The  same  general  remarks  relating  to  other  systems  apply  also  to  this,  except 
as  to  results.  If  it  were  possible  to  have  a  record  of  time  kept  along  the  lines 
laid  down  in  the  system  referred  to,  and  kept  also  according  to  the  principles 
outlined  in  this  system,  it  would  be  seen  at  once  that  the  amount  of  direct  labor 
would  increase  in  this  system,  whereas  the  indirect  labor  as  well  as  the  main 
tenance  would  decrease.  This  is  because  more  labor  can  be  charged  against  a 
machine  or  process  than  can  be  charged  to  the  product  direct;  and  herein,  as 
well  as  in  other  respects,  this  system,  where  it  is  practical  to  install  it,  is  to  be 
preferred  to  the  other.  It  means  more  accurate  results.  As  has  already  been 
stated,  the  direct  labor  appearing  in  this  Pay  Roll  should  be  verified  with  the 
Machine  and  Process  Cost  records,  so  far  as  direct  labor  is  concerned,  in  order  to 
prove  the  accuracy  of  the  distribution. 

STOCK    CARD FINISHED    PRODUCT 

(Form   12  B) 

The  operations  of  this  form  are  fully  explained  in  the  preceding  system  and 
also  in  Chapter  XVI,  where  several  different  designs  of  the  form  is  presented. 
Complete  information  regarding  it  can  be  obtained  by  referring  to  these  two 
chapters. 

PROCESS   COST   RECORDS 

(Form   13  L) 

It  is  by  this  design  that  the  basis  of  this  Cost  System  is  illustrated,  and  right 
here  is  where  the  principal  difference  in  this  and  other  systems  lies.  By  follow 
ing  these  remarks  carefully  it  will  be  easy  to  understand  where  and  how  this 
system  will  produce  more  accurate  results  from  a  cost  distribution  standpoint 
than  any  other  method  known. 

As  in  the  case  of  other  forms  this  design  admits  of  change,  not  only  as  to  the 
arrangement  of  the  columns  and  analysis  of  the  cost  so  far  as  the  names  used  to 
describe  the  costs  are  concerned,  but  also  as  to  an  entire  rearrangement  of  the 
information  contained  in  the  form;  but  it  must  be  kept  in  mind,  however,  that 
the  same  results  must  be  recorded — that  is,  the  operating  hours  and  the  various 
machine  or  process  costs. 

To  illustrate  what  is  meant,  take  the  present  form,  which  provides  for  the 
distribution  of  time  and  cost  on  the  side  of  the  form  and  the  operations  at  the 
top  of  the  various  columns.  By  leaving  the  columns  last  mentioned  blank,  and 
using  a  separate  card  for  each  operation  or  machine,  the  columns  may  be  headed 
according  to  days,  weeks,  or  months  without  changing  in  any  way  the  present 


298 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  13  U 


PROCES 
.__—_-.       _.Deoa 

S  CARD  REC 

•tment-For  th< 

;ORD 

1 

No  

M 

achine  No 

Opera 

tion...    

DISTRIBUTION 

Time 

Begun 

Finished                                ' 

Hours 

;        Idle 

Machine  Costs 

Day  Work 

Piece  Work 

Supplies 

Power                                       ; 

Floor  Space 

Maintenance 

License 

Depreciation 

Insurance 

Indirect  Expenses 

TOTAL 

Cost  per  Hour               : 

1                         1 

Standard  Size  6 


ruling  and  without  affecting  the  results  to  be  accomplished  by  the  form.  On  the 
other  hand,  the  form  may  be  re-designed  and  the  distribution  of  the  time  and 
cost  entered  at  the  top  of  the  columns  or  form  and  the  operations  entered  on  the 
side,  and  the  form  used  as  a  daily,  weekly,  or  monthly  record  for  all  operations 
in  the  plant.  Where  this  is  done  and  the  form  used  for  recording  daily  transac 
tions,  naturally  a  separate  record  either  in  the  form  of  a  sheet  or  card  must  be 
used  each  day  and  summarized  according  to  weeks  and  months,  and  so  on. 

The  information  to  be  entered  on  this  record  is  obtainable  from  three  sources — 
that  is  to  say,  from  the  Time  Reports,  so  far  as  hours  and  labor  cost  are  concerned ; 
from  the  Material  Requisitions,  for  supplies  used;  and  from  the  general  books  so 
far  as  all  of  the  other  items  are  concerned,  except  power. 

The  charges  or  costs  first  mentioned — that  is,  the  labor — should  be  obtained  by 
sorting  all  the  Time  Reports  relating  to  the  same  operation  and  ascertaining  the 
total  labor  chargeable  to  the  operation,  as  well  as  the  number  of  operating  hours 
and  minutes  charged  to  the  various  order  numbers  shown  on  the  Time  Report. 

After  this  has  been  done,  then  the  supplies  chargeable  to  each  operation,  as 
shown  by  the  Material  Requisition,  should  be  ascertained  and  entered  against  the 
operation  chargeable. 

The  next  element  of  cost  relates  to  power,  where  the  operation  is  performed  on 


COMPLETE   COST   SYSTEMS  299 

a  machine.  Without  discussing  this  fully,  as  a  detailed  explanation  is  given  under 
the  caption  "Power  Cost  and  Distribution,"  it  will  be  sufficient  to  say  at  this 
time  that  the  rate  per  horse-power  hour,  and  not  horse-power,  shown  on  the  form 
just  mentioned,  should  be  multiplied  by  the  total  operating  hours  of  the  machine 
and  the  amount  entered  as  the  cost  of  power.  It  will  be  seen  later  that  it  would 
be  manifestly  unfair  to  distribute  power  cost  against  the  machine  merely  on  the 
basis  of  horse-power,  as  the  machine  might  not,  and  very  likely  would  not,  be 
operating  full  time. 

The  next  item  relates  to  floor  space.  This  is  obtained  from  the  general  books 
in  the  following  manner.  The  total  floor  space  of  the  plant  should  be  ascertained 
by  departments  and  should  be  reduced  to  square  feet.  Then  the  amount  of  rent 
paid  or  the  equivalent  to  rent,  which  will  be  explained  below,  should  be  divided 
by  the  total  number  of  square  feet  and  the  rate  ascertained  per  square  foot.  The 
space  occupied  by  each  machine  or  process  should  be  calculated  and  this  space  or 
number  of  square  feet  multiplied  by  the  cost  per  square  foot  will  give  the  amount 
to  be  charged  in  this  form  as  "Floor  Space."  Where  the  property  and  plant  is 
owned  by  the  individual  or  company  operating  the  plant,  the  amount  of  rental 
equivalent  should  be  ascertained  by  taking  into  consideration  interest,  taxes, 
maintenance  of  buildings,  insurance  on  buildings,  the  cost  of  ground  maintenance, 
and  any  other  items  that  may  relate  to  the  cost  of  maintaining  the  grounds  and 
buildings.  These  items  are  the  ones  previously  referred  to  as  Rental  Equivalents. 

The  next  item  appearing  is  that  of  maintenance;  and  this  cost  is  obtained  in 
part  from  the  Time  Reports  and  in  part  from  any  material  used  from  the  requisi 
tions  just  mentioned,  the  total  being  entered  against  the  operation  which  the  re 
pairs  relate  to.  The  item  "License"  can  be  obtained  from  the  general  books,  and 
represents  charges  made  in  some  States  and  cities  for  the  privilege  of  operating 
certain  kinds  of  machines.  Where  this  applies  it  should,  of  course,  be  charged  to 
the  machine. 

The  depreciation  appearing  in  this  form  is  taken  from  a  regular  schedule  after 
it  has  been  calculated,  and  the  same  amount  may  be  entered  each  month,  as  the 
total  of  all  of  these  charges  to  the  operations  for  depreciation  will  appear  in  the 
general  books.  The  method  of  treating  depreciation  can  be  found  in  Chapter  IV, 
but  it  might  be  well  to  call  attention  here  to  the  fact  that  it  is  sometimes  well  to 
estimate  the  life  of  a  particular  machine,  based  on  running  full  time.  Then  ascertain 
the  amount  of  the  depreciation  per  hour  and  charge  the  machine  at  this  rate,  for 
the  actual  working  hour.  Where  this  is  done,  of  course,  the  amount  of  deprecia 
tion  charged  to  the  machine  will  be  different  each  month,  as  will  also  the  total 
amount  of  depreciation  appearing  in  the  general  books.  More  accurate  results 
will  be  obtained,  however,  since  it  must  be  admitted  that  depreciation  is  based  on 


300  FACTORY    ORGANIZATION   AND    COSTS 

the  number  of  hours  the  machine  actually  works.  This  does  not  mean  that  a 
machine  may  not  depreciate  in  value  and  in  fact  becomes  worthless,  due,  perhaps, 
to  modern  inventions,  but  as  the  term  is  generally  understood  it  does  apply. 

The  method  of  figuring  the  insurance  charged  to  the  machine  is  based  on  the 
average  rate  charged  by  the  various  insurance  companies,  and  can  be  taken  from 
the  insurance  policies,  a  schedule  being  prepared  which  will  answer  until  the 
insurance  rate  is  changed.  The  total  of  the  insurance  so  charged  to  the  machines 
or  operations  must,  of  course,  correspond  with  the  entries  made  in  the  general 
books,  and  is  credited  to  either  a  reserve  fund  or  to  deferred  charges.  That  is, 
if  the  insurance  is  paid  in  advance,  it  should  be  carried  as  a  deferred  charge  in  the 
general  books;  and  if  the  reverse  is  the  case,  it  should  be  credited  to  the  reserve 
fund  for  insurance.  When  the  insurance  is  paid  later,  the  reserve  fund  should  be 
charged  by  this  amount. 

The  next  item  appearing  is  that  of  Indirect  Expenses,  which  can  also  be  ob 
tained  from  the  general  books  by  dividing  the  indirect  expenses  as  there  shown 
by  the  total  direct  labor  also  shown.  The  labor  charged  to  each  machine  or  pro 
cess  is  then  multiplied  by  the  per  cent,  thus  obtained,  and  the  amount  entered 
against  the  operation  or  machine;  or  the  total  indirect  expenses  may  be  divided 
by  the  machine  hours  and  the  rate  per  hour  ascertained,  which,  multiplied  by 
the  hours  charged  to  each  machine  or  operation,  will  give  the  amount  chargeable 
to  the  machine  or  operation.  The  conditions  existing  in  each  plant  will  necessarily 
regulate  the  choice  of  the  method  used.  For  a  full  analysis  of  this  subject  see 
Chapter  IV,  explaining  several  different  methods  of  handling  the  expenses  of  this 
nature. 

From  the  foregoing  it  will  be  seen  that  all  of  the  cost  relating  to  manufacturing, 
except  cost  of  material,  has  been  charged  against  each  operation  or  machine,  and 
that  the  total  number  of  hours  also  appears.  The  next  step,  of  course,  is  to  ascer 
tain  the  cost  per  hour,  which  is  only  a  matter  of  division.  This  being  obtained, 
the  manufacturer  has  a  record  of  the  actual  cost  of  operating  each  machine  or  each 
process  in  his  plant;  and  with  this  information  all  that  is  necessary  is  to  apply 
this  rate  to  the  various  orders  passing  through  any  or  all  of  these  operations  by 
keeping  a  record  of  the  length  oT  time  each  order  has  consumed  in  any  particular 
operation,  and  by  multiplying  the  number  of  hours  shown  by  the  rate  per  hour, 
the  process  or  machine  cost  will  necessarily  be  determined,  which,  as  has  already 
been  shown,  includes  the  indirect  expenses. 

This  system  provides  for  this  information  being  recorded  on  the  Production 
Order  and  Cost  Record  described  herein;  and  inasmuch  as  the  number  of  hours 
charged  to  the  various  orders  passing  through  these  operations  during  the  month 
is  the  same  as  appears  on  this  form,  in  total,  for  the  several  operations,  it  follows 


COMPLETE   COST   SYSTEMS 


301 


that,  if  the  number  of  hours  charged  with  these  orders  is  multiplied  by  the  rate, 
the  total  machine  or  process  cost  is  bound  to  be  distributed  among  these  orders, 
if  the  work  is  accurately  done. 


POWER    COST    AND    DISTRIBUTION 

(Form   13M) 


PROCESS  COSTS  &  DISTRIBUTION 


For  the  month  of 19- 


ANALYSIS                                  COST                      DISTRIBUTION 

OEPT. 

HORSE  RUNNING'      H.  P.      ||         POWER 

POWER      TIME 

HOURS 

COST 

Rental  Charge 

Machine  No.  1 

A 

Depreciation 

Machine  No.  2 

A 

License 

Machine  No.  3 

A 

Inspection 

Machine  No.  4 

B 

Insurance 

Etc. 

C 

Fuel 

etc. 

Water 

Repairs 

Oil,  Waste,  etc. 

Engineer 

Firemen 

Incidental* 

TOTAL 

Horse-Power  Hours 
Horse-Power  Distributed 
Horse-Power  Developed 
Horse-Power  Loss  and  Transm  ssion 
Cost  per  Horse-Power  Hour 

Standard  Size  Ski  *  6)4 


As  previously  shown,  the  power  cost  is  distributed  according  to  this  system 
among  the  operating  machines  on  a  basis  of  the  cost  of  a  horse-power  hour.  The 
method  of  arriving  at  this  cost  is  substantially  the  same  as  in  the  case  of  the  ma 
chine  or  process  cost — that  is  to  say,  the  rental  charge,  depreciation,  insurance, 
and  license,  together  with  the  other  items  appearing  on  this  form  under  the 
caption  "Analysis,"  are  obtained  from  the  same  sources  and  in  the  same  manner 
as  the  items  of  cost  relating  to  machines  and  processes.  The  total  of  this  cost  is 
divided  by  the  total  horse-power  hours,  or  the  number  of  hours  the  machines  are 
in  operation,  multiplied  by  the  horse-power  of  each  machine,  which  gives  the 
horse-power  hours  of  each  machine  and  the  total  horse-power  hours  of  the  power 
distributed  or  utilized.  This  unit  rate  or  horse-power  cost  per  hour  should  be 
multiplied  by  the  total  horse-power  hours  of  each  machine,  and  the  amount  ex 
tended  in  the  column  headed  "Power  Cost."  The  total  of  this  column  should 


302  FACTORY    ORGANIZATION    AND    COSTS 

equal  the  total  shown  in  the  column  headed  "Cost,"  relating  to  the  analysis  of 
power  cost. 

BILLING    SYSTEM 

(Form   17  A) 

CREDIT    CERTIFICATE 

(Form   18  A) 

REGISTER    OF    SALES   AND    COST 
(Form   19  A) 

REGISTER    OF   RECEIPTS    AND    DISBURSEMENTS 

(Form  23  B) 

In  order  to  save  space,  and  because  these  forms  have  already  been  explained, 
not  only  in  the  preceding  system,  but  also  in  that  section  of  the  work  relating  to 
forms  (Chapters  XXI,  XXII,  and  XXVI),  it  is  not  deemed  necessary  to  give  any 
further  explanation  in  this  chapter. 

REGISTER    OF    ACCOUNTS    PAYABLE 

(Form   21  C) 

For  explanation  of  this  form,  see  "Departmental  System,"  Chapter  XXXV, 
the  first  system  explained,  and  Chapter  XXIV,  on  "Forms." 

INVENTORY    OF   MATERIAL 

(Form  45  B) 

For  an  explanation  of  this  form,  see  Chapter  XXIX. 

STATEMENT    OF    PROFIT   AND    LOSS 

(Form  53  B) 

A  statement  of  this  kind  must  naturally  be  prepared  from  the  information 
contained  in  the  several  accounts  kept  in  the  Ledgers,  and  at  this  point  it  might 
be  well  to  state  that  all  of  the  postings  in  the  Ledger  should  be  made  from  the 
Register  of  Accounts  Payable,  Cash  Book,  Register  of  Sales  and  Costs,  and  the 
Journal,  according  to  a  suitable  classification  of  accounts.  The  accounts  that 
would  affect  a  statement  of  this  kind  consist  of  the  various  sales  accounts  or 
sales  departments,  in  which  would  be  entered  on  the  credit  side  the  sales  at  the 
selling  price,  and  on  the  debit  side  the  cost  of  the  goods  sold  for  the  same  period, 
which  information,  as  has  already  been  explained,  will  be  obtained  by  posting 
from  the  Register  of  Sales  and  Costs. 


COMPLETE   COST   SYSTEMS 


303 


(Form  53  B; 


|~~                                                                   STATEMENT  OF  PROFIT  AND  LOSS 

Dated 

ANALYSIS 

DEPT. 

A 

DEPT. 
B 

DEPT. 
C 

DEPT. 
0 

DEPT, 

E 

DEPT. 

F 

DEPT. 
G 

DEPT. 
H 

DEPT. 
J 

TOTAL 

Sales 

Cost  of  Sales 

Gross  Profit 

Expenses: 

Selling 

Administrative 

Total 

Net  Profit  from  Operat  g 

All  other  Income  and 

Expenditures 

NET  PROFIT  FROM  AIL  SOURCES 

Standard  Size  13  X  13 


Therefore,  in  connection  with  the  preparation  of  this  statement,  it  will  be 
observed  that  three  of  the  elements  already  appear  in  this  account — that  is,  the 
sales  at  the  selling  price,  the  cost  price,  and  the  balance  or  difference  representing 
the  gross  profit  on  goods  sold  in  each  of  the  departments  the  business  may  be 
divided  into.  The  other  information  relates  to  the  selling  expenses  and  adminis 
trative  expenses  of  conducting  the  business,  which  are  obtained  by  posting  from 
the  Register  of  Accounts  Payable  to  the  Ledger  such  items  as  relate  to  expendi 
tures  of  this  nature,  and  also  any  other  expenses  that  may  appear  in  either  the 
Cash  Book  or  the  Journal  chargeable  to  these  particular  accounts.  If  these  ac 
counts  are  divided — that  is  to  say,  several  selling  expense  accounts  kept  and 
several  administrative  accounts  opened — then  the  sub-accounts  should  be  closed 
into  the  general  accounts  and  the  total  of  each  of  the  two  main  expense  accounts 
pro-rated  or  distributed  among  the  Sales  Accounts  or  Sales  Departments  on  the 
basis  of  the  volume  of  business  done  at  the  cost  price.  After  this  transfer  has 
been  made,  each  department  will  show  the  amount  of  selling  expenses  as  well  as 
the  amount  of  administrative  expenses  charged  to  it,  and  the  department  account 
will  then  indicate  the  net  profit  on  this  line  of  goods. 

Thus  it  is  seen  that  the  other  two  elements  called  for  in  the  statement  can 
now  be  entered  and  the  net  profit  from  operating  shown.  All  of  the  balances 


COMPLETE    COST   SYSTEMS  305 

shown  in  the  Department  account,  which  means  the  net  profit,  should  now  be 
transferred  to  the  General  Profit  and  Loss  account,  and  these  accounts — that  is, 
the  department  accounts — ruled  off.  If  there  are  any  other  items  of  profit  of  a 
miscellaneous  character  entering  in  the  Profit  and  Loss  account,  they  may  be 
included  in  the  statement  as  miscellaneous  income  and  added  to  the  net  profit 
from  operating,  which  will  then  show  the  profit  from  all  sources.  The  net  result 
shown  by  this  statement  should,  of  course,  correspond  with  the  amount  appear 
ing  in  the  balance  sheet  next  to  be  mentioned. 

COMPARATIVE    BALANCE    SHEET 
(Form  55  A) 

The  only  material  difference  between  this  form  and  the  Trial  Balance  is  that 
the  Balance  Sheet  is  a  statement  of  assets  and  liabilities  after  closing  the  books, 
and  does  not  include  any  expense  accounts  or  any  other  items  relating  to  profit 
and  loss  except  the  balance  of  the  profit  and  loss  account  in  total.  Consequently, 
the  statement  of  profit  and  loss,  or  the  Profit  and  Loss  account  must  first  be 
completed  before  this  statement  is  made  out.  The  information  is  all  obtained 
from  the  General  Ledger,  if  controlling  accounts  are  contained  therein,  and  if  not 
the  amounts  called  for  relative  to  Accounts  Receivable  and  Accounts  Payable 
can  be  taken  from  a  schedule  showing  the  balances  of  amounts  due  from  cus 
tomers  and  amounts  due  creditors  respectively.  In  other  words,  after  the  Profit 
and  Loss  account  has  been  made  up,  this  statement  can  be  prepared  by  entering 
the  balance  of  each  account  in  the  column  headed  "  Current  Month ' ' ;  and  if  it  is 
desired  to  show  the  increase  or  decrease  between  the  current  month  and  the  pre 
ceding  month — which  means  the  changes  in  the  accounts  between  these  two 
periods — then  the  increase  or  decrease  should  be  entered  in  the  column  provided 
for  that  purpose  with  black  ink  in  the  former  instance,  and  with  red  in  the 
latter.  This  can  be  done  by  taking  the  balance  of  the  account  at  the  beginning 
of  the  month  and  at  the  end  of  the  month,  and  ascertaining  by  subtraction  the 
net  increase  or  decrease  for  the  period. 

The  object  of  classifying  the  accounts  according  to  property,  deferred  charges, 
current  assets,  etc.,  is  to  show  the  total  amount  of  each  class  of  assets  as  an  aid 
to  the  management  in  determining  the  true  status  or  strength  of  the  enterprise 
from  a  financial  standpoint.  The  form  in  itself  is  regarded  as  comprehensive  and 
requiring  no  further  explanation. 


CHAPTER  XXXVIII 

PRODUCT    SYSTEM    ACCORDING   TO    THE    PRODUCTIVE    LABOR    METHOD   OF 

COST    FINDING 

General  Outline — Various  Functions  of  Material  Requisitions — Material  Delivered — Combination 
Day  and  Piece  Work — Analysis  of  Pay  Roll  by  Department — Division  of  Pay  Roll  when 
the  Month  Ends  in  the  Middle  of  the  Week — Standard  Cost  Sheet;  Illustration  of  Use — 
Illustration  of  Indirect  on  the  Cost  Sheet — Relation  of  Cost  Sheet  to  Finished  Product — 
Detailed  Production  Report — Stock  Record  for  Finished  Product  showing  Orders  Received, 
Unfilled  Orders,  Sales,  Costs,  and  Profits — Method  of  Handling  Defective  Work — Analysis  of 
Factory  Expenditures — The  Use  of  the  Operating  Ledger — Distinction  between  Factory  and 
Sales  Department — A  Plan  to  Make  Each  Responsible — The  Purpose  of  the  Factory  Account 
"according  to  this  Plan" — The  Relation  of  Each  Department  to  the  Management — The  Gen 
eral  Ledger  Accounts — Billing  System — Analysis  of  Sales  and  Costs — Description  of  Accounts 
Payable  Voucher — Ledger  Postings  from  Register  of  Accounts  Payable — Check  Voucher — Veri 
fication  of  the  Inventory  from  Day  to  Day — The  Profits  between  the  Factory  and  Sales  Depart 
ment  as  a  Separate  Factor — The  Preparation  of  Profit  and  Loss  Statements  and  Balance  Sheets. 

A  SYSTEM  of  this  kind  may  be  operated  successfully  under  conditions  where 
the  product  is  all  manufactured  and  carried  in  stock,  from  which  customers' 
orders  are  filled  directly,  without  the  orders  having  any  direct  connection  with 
the  product.  Where  these  conditions  exist  and  the  same  article  is  manufactured 
continuously  throughout  the  year,  and  where  no  connection  between  orders  re 
ceived  from  customers  and  the  product  manufactured  is  made,  it  may  be  an 
advantage,  and  often  is,  to  keep  a  separate  Cost  Sheet  for  each  article  and  disre 
gard  entirely  any  production  orders  issued  to  the  factory  calculated  to  regulate 
production,  but  not  intended  to  be  used  for  cost  keeping  purposes. 

The  principal  difference  between  this  system  and  the  system  described  in 
Chapter  XXXVI  is  that,  in  this  instance,  the  cost  is  obtained  according  to  article 
irrespective  of  any  production  order  numbers,  whereas  in  the  other  case  costs  are 
calculated  and  charged  against  a  particular  order  number.  In  addition  to  this, 
the  present  system  is  more  complete  in  many  respects,  as  the  indirect  expenses 
are  determined  according  to  department;  while  in  the  other  system  this  informa 
tion  was  only  obtained  as  applying  to  the  factory  as  a  whole.  The  method  de 
scribed  in  this  chapter  will  insure  a  more  accurate  distribution  of  the  indirect 
expenses.  Several  different  forms  not  included  in  either  of  the  other  systems — 
such  as  an  Operating  Ledger  or  Distribution  Book,  Defective  Work  reports,  and 
Piece  Work  reports  showing  production,  more  complete  in  design  than  the  other 
forms — are  introduced.  The  Voucher  System  of  accounting,  in  connection  with 


COMPLETE   COST   SYSTEMS  307 

the  Check  Voucher  System,  is  also  presented  for  the  first  time,  and  all  the  opera 
tions  in  connection  with  records  of  this  description  are  explained. 

Another  feature  that  will  appeal  to  the  business  man  operating  a  plant  where 
a  system  of  this  kind  would  be  installed,  and  where  a  number  of  articles  are  manu 
factured  and  carried  in  stock,  is  the  system  of  stock  keeping  presented.  The 
form  presented  is  one  of  the  most  complete  designs  for  this  purpose,  and  is  in 
tended  to  enable  the  manufacturer  to  ascertain  the  exact  gross  profit,  which  means 
factory  profit,  or  the  difference  between  the  actual  factory  cost  and  the  selling 
price  of  .every  article  manufactured.  Moreover,  this  will  be  done  so  as  to  form 
a  part  of  the  general  counting-house  books,  and  in  a  manner  so  accurate  and 
complete  as  to  enable  the  one  keeping  this  record  to  verify  this  profit  with  the 
general  books  of  account  kept  in  the  office.  In  addition  to  this,  the  form  also 
shows  the  unfilled  orders  in  connection  with  the  balance  of  the  stock  on  hand 
according  to  each  article,  which  will  be  found  of  great  value  if  used  in  regulating 
the  production  of  these  articles.  Experience  has  shown  that  the  information  on 
this  form,  considered  in  connection  with  the  maximum  and  minimum  quantity 
of  stock  to  be  carried,  is  the  proper  key  to  the  stock  situation.  The  columns  are 
so  arranged  as  to  make  it  possible  to  carry  this  information  along  by  means  of 
daily  postings. 

The  management  will  be  able  to  have  more  complete  reports  prepared,  show 
ing  the  operations  of  the  factory  and  indicating  the  profits  departmentally  accord 
ing  to  a  more  accurate  plan  in  this  system,  than  by  the  form  connected  with  the 
system  shown  in  Chapter  XXXVI;  all  of  which  means  that  this  system  is  more 
complete  than  the  former  one,  and  better  adapted  to  a  factory  where  a  little 
better  grade  of  office  help  is  employed  and  where  the  organization  admits  of  the 
business  being  so  systematized  as  to  bring  to  the  attention  of  the  management 
all  the  statistics  incident  to  its  operation. 

PURCHASE   REQUISITION 

(Form  1  B) 

PURCHASE    ORDER 

(Form  2  B) 

REPORT   OF   MATERIAL   RECEIVED 

(Form  3  G) 

STOCK   SHEET    FOR   RAW   MATERIAL 
(Form  4  G) 

The  first  three  forms  are  for  the  purposes  explained  in  the  system  under  Chap 
ter  XXXVI,  and  also  as  explained  in  the  Chapters  VII,  VIII,  and  IX,  relating 


308 


FACTORY   ORGANIZATION   AND    COSTS 


(Form  1  B) 


T 

o 

PURCHASE  REQUISITION. 

No. 

190 

(  Purchasing  Agent) 

Please  order  the  following  articles: 

FOR  THE  I 
DEPT. 

JSE  OF 

OKL'ES   NO. 

ARTICLE 

! 

PURCHASE 
ORDER  NO. 

QUANTITY 

,_  D     E  ° 

1 

! 



_^____-     .                                                                                                  .... 

~~I 

^~r 

! 

| 

li                 ! 

Approved: 

Signed: 

Standard  Size  6X  x 


(Form  2  B) 


A.  B.  C.  Co. 

New  York. 

To                                                                     PURCHASE  ORDER. 

Purchase 
Requisiti 

Orde'  No. 

>n  No.  ... 

...190.... 

°lease  ship  the  material  described  below. 
Place  our  Purchase  Order  Number,  Requisition  Number  and  Car  Number  on  all  Invoices. 
Send  duplicate  Invoices  and  Bill  of  Lading  for  each  shipment. 

SHIP  ON  OR  BEFORE 

DESCRIPTION 

QUANTITY 

PRICE 

1 

A.  B.  C.  Co. 
Per  -  

A.  B.  C.  Co., 

New  York. 
Gentlemen:-  We  are  in 

(Tear  this  off  and  mail  to) 

100       ..     .. 

(Signed) 

Standard  Size  7X-*  » 

to  forms  of  this  description;  and  while  they  are  different  in  design  from  any  of 
the  forms  described  in  any  of  the  other  systems,  the  difference  is  of  such  a  nature 
as  to  be  practically  a  matter  of  choice  as  to  which  should  be  used  rather  than 
anything  else,  and  are  presented  in  this  system  with  that  idea  in  view. 

The  form  last  mentioned— that  is,  the  Stock  Sheet  for  Raw  Material— differs 
from  the  other  stock  sheets  only  in  that  columns  are  provided  to  show  the  date 
and  quantities  of  material  ordered,  which  is  a  feature  that  does  not  appear  in  the 
other  forms  described  in  the  other  systems.  This  information  can  be  obtained 
from  the  purchase  orders,  and  all  the  other  information  in  precisely  the  same  way 
and  from  the  same  sources  as  in  the  system  under  Chapter  XXXVI — except  that 
the  material  requisitions  may  be  summarized  on  the  Report  of  Material  Delivered, 
explained  later  in  this  chapter,  and  the  total  amount  for  the  week  or  month 


COMPLETE   COST   SYSTEMS 


309 


(Form  3  Q) 


REPORT  OF  MATERIAL  RECEIVED.  No 

Purchase  Order  No. 

Requisition  No. 

Name Date 

ARTICLE 

CNOSS  DESCRIPTION 

I          j  — 

I        I  I 

Received  by:  Entered  by 

Standard  Size  8^  x  *% 
(Form  3  G  Duplicate) 

REPORT  OF  MATERIAL  RECEIVED  No. 

Purchase  Order  No. 

Requisition  No. 

Name.,  Date 

..  _..  -A-RT|CLE—  -  |  COST 

TEM  NO.     CLASS.  NO.  DESCRIPTION  fRiCf    j  RATE  AMOUNT 

CHARGES DISTRIBUTION 

DESCRIPTION  AMOUNT  DEPARTMENT  ACCOUNT  FOLIO  AMOUNT 

i  !  M  I  I  Mi 

Received  by: Entered  by 

Standard  Size  8X  x  U 


entered  in  the  Stock  Records,  instead  of  posting  each  item  separately  as  shown 
on  the  Material  Requisition  for  stock  used.  Otherwise  there  is  no  difference  in 
the  manner  of  operating  this  form. 


PRODUCTION    ORDER 
(Form  51) 


In  this  instance  the  Production  Order  is  used  only  for  the  purpose  of  giving 
the  factory  superintendent  or  foreman  written  authority  to  manufacture  the 
goods  shown  in  this  order,  instead  of  giving  directions  to  them  verbally,  and 


310 


FACTORY    ORGANIZATION   AND    COSTS 


O 

III 

0 

< 

o§| 

03 

s 

z  E  E 

*j   x  "E 

0   a  .- 

QUANTITY 

V 

< 

Q 
U 

H 

Ul 

E 

LJ 

UJ 
Q 

QXIANTITY 

h- 

s 

1- 
ui  o 

^ 

j5 

^ 

1- 

5 

i>- 

y: 

o 

1 

^ 

| 

•~ 

?. 

O 

:/} 

O 

1- 

CO 

s 

RECEIVED 

QUANTITY 

MATERIAL 
RECEIVED 
SHEET  NO. 

PURCHASE 
ORDER  Ng 

Q 

LJ 

E 

LU 

QUANTITY 

c 
(J 

tr 
0 

PURCHASE 
ORDER  NO. 

"* 

UJ 

2 

COMPLETE   COST   SYSTEMS 


311 


(Form  5  I) 


To  Foreman 
Charge  all  \ 

FACTORY  ORDER 

No 

.  .Department          Date 

laterial  and  Time  to  above  Order  No. 

ra-E 
WANTED 

PATTERN 
NO. 

DRAWING 
NO. 

DESCRIPTION 

QUANTITY 

1 

You  ar« 

Inspec 

Receiv 
By  — 

here 
ted  b 

ed 

by  authorized  to  manufacture  the  above  articles  as  stated 
!,'_  

._    .Manager 

10 

Standard  Size  5  x 


forms  no  part  of  the  system  of  cost  keeping,  nor  does  it  relate  in  any  way  to  the 
stock  record. 

The  importance  of  using  such  a  form  as  this  is  fully  explained  in  the  system 
in  Chapter  XXXVI,  as  well  as  in  Chapter  XI,  relating  to  forms  of  this  character, 
to  which  the  reader's  attention  is  called. 

MATERIAL   REQUISITION 

(Form  6  A) 


(Form  6  A) 


Department 

MATERIAL  REQUISITION 

_    _                                                         No 

ORDER  NO. 

ARTICLE 

QUANTITY 

Received  by 

Signed 

z  5k 


The  essential  difference  between  this  form  and  the  one  explained  in  the  preced 
ing  systems  is  that  several  orders,  or  the  material  for  different  purposes,  may  be 
drawn  from  stock  on  this  form  instead  of  using  a  separate  form  or  requisition  for 
each  order  number  or  special  purpose.  Nor  is  any  provision  made  in  this  form 
for  pricing  the  material  so  delivered  from  stock,  as  it  is  the  intention  in  this  sys 
tem  to  illustrate  how  the  material  can  be  summarized  according  to  article  and 
also  by  department  chargeable,  so  as  to  require  only  the  pricing  of  the  total  ma 
terial  used  during  the  month.  This  will,  of  course,  save  a  great  deal  of  time  in 


312 


FACTOEY    ORGANIZATION   AND    COSTS 


making  extensions  and  in  looking  up  prices  to  be  entered  on  requisitions,  whicli 
the  former  method  calls  for.  If  this  method  is  adopted  the  totals  shown  by  this 
report  of  material  delivered  would  be  entered  in  the  Stock  Record  at  the  end  of 
the  month,  instead  of  each  day.  Apart  from  this  the  Requisition  should  be  used 
for  the  same  purpose  as  all  other  requisitions — that  is,  for  obtaining  material  from 
the  store-room. 

REPORT   OF   MATERIAL   DELIVERED 

(Form  8B) 

(Form  8  B) 


REPORT  OF  MATERIAL  DELIVERED                                    No 

Department                                                                 f 

I  ORDER  NO. 

PRODUCT 
CHARGEABLE 

ARTICLE 

QUANTITY 

RATE 

AMOUIST 

Approve 

d:           _                     -  _                                                Correct: 

Standard  Size  9^  x 


This  form  should  be  used  in  connection  with  a  material  requisition  of  the 
design  just  explained.  Its  purpose  is  to  ascertain  the  total  amount  of  material 
delivered  from  the  store-room  during  the  month,  according  to  article  and  charge 
able  to  a  particular  department,  as  well  as  to  indicate  the  name  of  the  product 
the  material  was  used  for  and  to  which  it  should  be  charged.  The  totals  shown 
by  this  report,  after  the  cost  price  has  been  entered  and  the  extensions  made, 
should  be  transferred  to  the  Stock  Record  for  Raw  Material,  according  to  the 
article  so  used,  and  entered  therein  in  the  columns  provided  for  that  purpose. 
After  this  has  been  done  a  charge  should  be  made  in  the  columns  shown  in  the 
Cost  Sheet  for  that  purpose,  for  the  amount  of  material  chargeable  to  the  product 
or  to  the  article  manufactured  from  this  material.  The  total  amount  of  material 
used  in  any  one  department  should  be  entered  in  the  Operating  Ledger  from  the 
report  to  the  credit  of  the  Store-room  Account,  and  to  the  debit  of  the  depart 
ment  in  which  the  material  was  used.  After  these  entries  have  been  made  this 
report  may  be  filed  departmentally  according  to  date  and  number,  or  all  of  these 
sheets  for  all  departments  may  be  kept  together  in  one  binder  according  to 
months. 


COMPLETE   COST   SYSTEMS 


313 


DAY    WORK    ANP    PIECE    WORK   REPORTS 

(Form  9  B) 

(Form  9  B) 


PIECE  WORK  REPORT 

-    --           -                   .Department 

D«t< 
Clo< 
Ro 

Name 

k  No  
m 

Occupation 

ORDER  NO. 

KINO 

OPERATION 

QUANTITY 

RATE 

AMOUNT 

- 

1 

Quantity  O 

K  Price  O.K.                                                Am 

ount  O.K. 

Standard  Size 


In  all  of  the  time  reports  shown  so  far,  the  design  has  called  for  a  separate 
report  being  made  out  each  day,  but  in  this  case  the  form  is  so  designed  as  to 
admit  of  the  full  week's  work  being  entered  on  the  same  time  report,  which  illus 
trates  a  combination  day  and  piece  work  report.  This  will  be  found  an  advan 
tage  in  a  plant  where  the  employees  are  engaged  part  of  the  time  on  day  work 
and  part  of  the  time  on  piece  work.  Two  separate  forms  may  be  used,  however, 
if  desired.  In  any  event,  the  Time  Reports  should  be  entered,  after  being  duly 
approved,  in  the  Pay  Roll  records,  and  also  entered  in  the  Cost  Record  and 
charged  on  the  Cost  Sheet  to  the  proper  article  shown  in  the  Time  Report,  the 
amount  being  entered  in  the  columns  of  this  record  relating  to  labor  and  all  other 
columns  properly  filled  out. 

As  this  system  is  based  on  the  Productive  Labor  method,  it  will  be  necessary 
to  extend  the  time  of  each  employee  by  entering  the  rate  of  pay  and  extending 
the  amount,  but  care  must  be  taken  in  posting  these  labor  charges  to  the  Cost 
Sheet  to  indicate  the  department  in  which  the  work  was  done,  as  the  indirect 
expenses  will  not  be  distributed  on  the  total  labor  as  has  been  done  in  the  system 
under  Chapter  XXXVI,  but  on  the  amount  of  labor  in  each  department.  This 
involves  separate  percentages  in  each  department. 

PAY  ROLL 

(Form   10  G) 

While  this  form  differs  only  from  the  other  forms  of  pay  rolls  used  to  the 
extent  that  no  columns  are  provided  for  a  record  of  the  daily  time,  yet  it  might 
be  well  to  call  attention  to  the  fact  that  the  Pay  Roll  must  be  made  out,  so  far 
as  the  listing  of  the  employees'  names  are  concerned,  in  such  a  way  as  to  indicate 


314 


FACTORY    ORGANIZATION   AND    COSTS 


(Form  10  G) 


FACTORY  PAY  ROLL                                      Fo 

r 

.Week  ending 

19 

EMPLOYEE 

DISTRIBUTION 

DEPT. 

CLOCK  NO. 

NAME 

MAINTENANCE 

'  — 

Standard  Size  11  x  12 


the  labor  by  departments  not  only  in  totals  but  also  as  to  distribution,  showing 
direct  and  indirect  labor,  etc.  The  reason  that  no  columns  are  provided  in  this 
system  for  a  daily  record  of  time  is  because  the  Time  Reports  show  all  of  this 
information,  and  it  would  be  an  unnecessary  duplication  of  the  facts  if  it  were 
re-entered  here. 

Since  the  Pay  Roll  is  divided  and  analyzed  by  departments,  it  would  be  ad 
visable  to  keep  a  Pay  Roll  account  in  the  General  Ledger,  charging  this  account 
from  the  Cash  Book  with  the  checks  drawn,  and  crediting  it  with  the  amount  of 
the  Pay  Roll  as  distributed  in  this  record.  This  will  then  balance  the  Pay  Roll 
account  and  leave  a  record  for  the  information  of  those  interested,  showing  the 
total  amount  of  the  Pay  Roll  in  the  Ledger. 

When  the  end  of  the  month  comes  in  the  middle  of  the  Pay  Roll  period,  or 
thereabouts,  the  Time  Reports  may  be  called  in  and  new  ones  issued  to  each 
employee,  upon  which  to  record  the  balance  of  the  week's  time.  The  amounts 
so  entered  in  the  Pay  Roll  are  used  only  for  the  purpose  of  obtaining  the  total 
amount  of  accrued  wages  for  the  part  of  the  week  that  would  be  unpaid  at  the 
end  of  the  month,  so  as  to  obtain  the  proper  charge  to  the  factory  and  to  show 
in  the  books  to  the  credit  of  the  Pay  Roll  account  the  accrued  but  unpaid  wages. 


COST    SHEET 
(Form  13  E) 


Up  to  this  point  a  standard  form  of  Cost  Sheet,  such  as  is  herein  presented, 
has  not  been  introduced,  and  for  this  reason  attention  is  called  not  only  to  this 
form  but  also  to  the  numerous  assortment  of  designs  or  forms  of  this  character 
shown  in  Chapter  XVII.  Almost  any  condition  applying  to  the  manufacturing 


COMPLETE   COST   SYSTEMS 


315 


(Form  13  E) 


Article  COST  SHEET 

DATE 

LABOR 

MATERIAL                                                £ 

^"M*      TOT 

»L  COST 

MONTH 

D«» 

OPERATION 

CHECK  NO. 

QUANTITY 

RATE 

AMOUNT 

DESCRIPTION 

•UU'»tlON 

QUANTITY 

RATE 

AMOUNT              AS 

IOUNT          All 

OUNT 

Standard  Size  11  x  14 


business  will  be  found  to  be  covered  by  these  forms — not  necessarily  as  to  cap 
tions,  headings,  or  number  of  columns,  but: as  to  the  principles  governing  the 
designing  of  such  forms,  and  also  so  far  as  their  general  character  is  concerned. 
Other  records  which  experience  has  shown  to  be  useful  in  cost  rinding  will  be 
found  in  Chapter  XI,  explaining  "Production  Orders,"  and  Chapter  XV,  explain 
ing  "Production  Reports/'  some  of  which  are  used  for  this  purpose. 

The  method  of  operating  this  form  is  to  use  a  separate  sheet  for  each  article 
manufactured  until  used  up,  according  to  the  method  next  to  be  explained. 

All  of  the  labor  charges  should  be  taken  from  the  Time  Reports,  and  this 
labor  should  be  entered  according  to  department  so  that  the  indirect  expenses 
may  be  distributed  over  the  labor  of  each  department  according  to  the  percentage 
of  indirect  expense  shown  in  the  Operating  Ledger,  described  later,  for  the  par 
ticular  department  shown  in  the  Cost  Sheet.  The  production  should  also  be  en 
tered  under  the  general  caption  "Labor"  in  the  column  headed  quantity;  the 
material  cost  can  be  taken  from  a  requisition,  but,  preferably,  from  the  report  of 
material  delivered,  if  the  general  lines  laid  down  in  this  system  are  followed. 
After  the  indirect  expenses  for  each  department  have  been  added,  based  on  the 
amount  of  labor  charged,  the  total  of  the  three  elements  of  cost  should  be  entered 
in  the  column  headed  "Total  Cost." 

To  illustrate  how  the  indirect  expenses  should  be  figured,  suppose  that  $12.50 
is  charged  to  an  article  for  labor,  $5.00  of  which  emanates  from  Department  A, 
and  $7.50  from  Department  B.  If  the  expenses  in  Department  A  are  calculated  as 
50  per  cent,  $2.50  would  be  charged  for  indirect  expenses  to  the  article  for  work 
done  in  that  department;  and,  on  the  other  hand,  if  the  expenses  in  Department 
B  figure  100  per  cent,  the  expenses  charged  for  work  done  in  this  department 
would  be  $7.50  These  comparisons  are  made  to  illustrate  the  method  of  enter- 


316 


FACTORY    ORGANIZATION    AND    COSTS 


ing  the  indirect  expenses  as  well  as  to  show  the  importance  of  dividing  up  the 
expenses  according  to  departments,  and  the  effect  that  it  usually  will  have  on  im 
proving  the  accuracy  of  the  cost.  It  may  occur  to  the  reader  that  considerable 
detail  would  be  involved  in  carrying  out  such  a  plan,  and  in  answer  to  this  atten 
tion  is  called  to  the  chapter  relating  to  Pay  Rolls  and  Distribution  Sheets,  and  to 
Form  10  D,  as  well  as  to  Chapter  IV,  explaining  various  methods  of  distributing 
expenses,  in  which  this  question  is  discussed. 

Returning  to  the  description  of  this  particular  form,  at  the  end  of  the  month, 
after  the  totals  have  been  entered  for  the  articles  finished  as  shown  by  the  Produc 
tion  Report  for  Finished  Product,  the  cost  should  be  entered  on  this  record  for 
the  amount  actually  expended,  and  this  Cost  Sheet  reduced  both  as  to  quantity 
and  cost  for  the  amount  so  finished.  The  balance,  representing  goods  in  process 
of  manufacture,  is  brought  down  for  the  beginning  of  the  next  month,  and  this 
balance  should  indicate  the  quantities  and  costs  in  the  various  operations.  The 
amount  entered  on  the  Finished  Stock  sheet  will  later  be  transferred  to  those 
records,  as  will  be  explained  in  the  next  form. 


PRODUCTION   REPORT 
(Form  11  M) 


(Form  11  M) 


PRODUCTION  REPORT 
Department    .                       Operation  For  month  of  -  19  

PRODUCTION 

COST 

NO.  , 

ARTICLE 

1 

2 

8 

4 

B 

6 

7 

8 

9 

10 

11 

12 

13 

14 

ie 

I" 

IT 

18    10   20  21  ,22  23:24 

AMOUNT 

Correct    .         _        .      _    _.      Approved  

Standard  Size  9  x  13X; 


This  form  should  be  made  out  by  the  superintendent,  foreman,  or  stock  clerk, 
or  some  other  individual  under  the  immediate  supervision  of  the  superintendent 
or  manager  of  the  factory.  The  report  relates  to  finished  product  only,  but  may 
be  used  to  show  the  production  of  a  particular  department  or  operation  as  well. 
As  can  be  seen,  twenty-seven  columns  are  provided  for  the  working  days  of  the 
month.  The  dates  should  be  entered  at  the  top  of  these  columns,  and  a  list  of 


COMPLETE   COST   SYSTEMS  317 

the  articles  manufactured  printed  on  the  left  of  the  form  under  the  caption  "Arti 
cles"  to  facilitate  the  making  out  of  the  report.  The  daily  production  of  each  of 
the  articles  appearing  should  be  entered  in  these  columns,  and  the  total  for  the 
month  extended  in  the  column  provided  for  that  purpose.  After  this  report  has 
been  approved  by  the  superintendent  or  manager  of  the  factory,  the  cost  of  each 
article,  as  shown  in  the  Cost  Record  just  described,  and  the  amount  or  total  cost 
of  each  article  produced  during  the  month,  extended  in  the  column  headed 
"Amount."  All  the  articles  finished  should  then  be  transferred  or  posted  ac 
cording  to  article  from  this  report  to  the  Finished  Stock  record,  and  entered  in 
the  column  headed  "Production"  and  added  to  the  stock  balance  for  the  article 
produced. 

STOCK    RECORD FINISHED    PRODUCT 

(Form   12  F) 

A  separate  sheet  should  be  used  for  each  kind  of  article  carried  in  stock. 
The  inventory  at  the  beginning  of  the  period  when  this  system  is  installed  should 
be  entered  in  the  column  headed  "Balance,"  both  as  to  quantity  and  cost,  and 
the  rate  indicated.  All  the  information  relating  to  production  can  be  obtained 
from  the  Production  Report  just  mentioned.  As  each  of  these  entries  is  made, 
the  balance  shown  at  the  extreme  right  of  the  sheet  should  be  increased  to  cor 
respond.  The  unfilled  orders  on  hand  at  the  time  the  system  is  installed  should 
also  be  entered  according  to  article;  and  any  orders  received  from  customers  for 
this  particular  article  should  be  entered  in  the  columns  provided  for  that  pur 
pose.  In  the  event  that  any  of  these  orders  are  cancelled  before  the  goods  have 
been  shipped,  this  should  also  be  indicated  and  the  column  headed  "Unfilled 
Orders"  changed.  The  information  relating  to  sales  at  both  the  selling  price 
and  the  cost  price  can  be  obtained  by  posting  each  day  from  the  Sales  Sheet  to 
this  record  all  of  the  articles  sold,  at  which  time  both  the  cost  price  and  selling 
price  should  be  entered  and  the  gross  profit  indicated.  The  balance  of  stock  on 
hand,  of  course,  should  be  changed  as  these  entries  are  made,  and  care  should  be 
taken  in  reducing  this  balance  to  use  the  cost  price  of  the  goods  sold  and  not  the 
selling  price.  The  selling  price  is  entered  only  for  the  purpose  of  showing  the 
average  selling  price  of  the  article,  and  the  gross  profit  resulting  from  the  sale  of 
the  same  articles  at  possibly  various  selling  prices. 


DEFECTIVE    WORK    REPORT 
(Form   14  A) 

The  intention  of  a  form  of  this  kind  is  to  bring  to  light  defective  work  or  shop 
errors  that  usually  occur  in  every  plant,  in  order  that  the  cause  may  be  ascer- 


*•  1  i 


COMPLETE   COST   SYSTEMS 


319 


DEFECTIVE  WORK  REPORT 
_..  ...Department                                             For  _L9.  ^ 

ARTICLE 

DEFECT 

CAUSE 

DISPOSITION 

RATE            AM( 

Approved:        .     Correct:..   ..    

Standard  Size  g  x  11 


tained  and  the  amount  of  this  work  or  loss  reduced  to  a  minimum.  The  disposi 
tion  of  work  of  this  character  will  depend  upon  the  nature  of  the  business.  It 
can  be  either  charged  to  a  defective  work  account  and  included  in  the  indirect 
expenses,  or  charged  to  the  product  for  which  it  was  intended,  which  will  increase 
the  cost  of  that  article;  as  the  amount  will  obviously  not  affect  the  quantity  pro 
duced  but  increase  the  cost  of  production  of  the  particular  article.  Where  some 
of  the  material  is  reclaimed  from  products  of  this  nature,  the  difference  between 
the  cost  of  the  work  spoiled  and  the  amount  received,  or  the  value  of  the  reclaimed 
stock,  can  be  charged  according  to  either  method  mentioned.  If  part  of  the  stock 
is  to  be  used  again  in  manufacturing,  this  should  of  course  be  transferred  to  the 
Stock  Records  for  Raw  Materials. 


STATEMENT   OF   FACTORY   EXPENDITURES 
(Form  15  A) 

A  statement  of  this  character  should  be  used  in  connection  with  the  system 
outlined  here,  where  the  business  is  divided  into  several  operating  departments; 
and  in  such  cases  an  Operating  Ledger  or  Distribution  Book  should  be  used  such 
as  will  be  explained  immediately  after  this  form,  as  it  affords  the  most  conven 
ient  method  of  compiling  expenditures  of  this  character.  All  the  information 
shown  can  be  obtained  from  this  Operating  Ledger.  The  purpose  is  to  reveal 
the  expenditures  relating  to  each  department  in  order  to  ascertain  the  amount 
of  expenses  shown  as  indirect,  as  well  as  the  percentage  of  each  of  these  depart 
ments  for  cost  keeping  purposes.  It  will  be  found  in  any  plant  that  more  accu 
rate  costs  can  be  obtained  by  dividing  the  business  into  departments,  because 
the  indirect  expenses  of  each  department  are  sure  to  be  different;  and  this  dif- 


Ill 


31s 


§'s 


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C 


H: 


-  -.^..J-l 
"111   l=" 

a  S 


m 


COMPLETE   COST   SYSTEMS  321 

ference  will  so  affect  the  costs,  in  some  instances,  as  to  be  misleading  to  a  great 
extent. 

The  information  shown  under  the  caption  " Direct"  represents  the  produc 
tive  labor  of  each  department  as  well  as  the  material  used ;  whereas  all  the  items 
appearing  under  the  caption  "Indirect"  represent  expenses  chargeable  directly 
to  each  of  these  departments,  except  the  account  "General  Operating  Expenses," 
which  means  such  items  as  appear  in  the  lower  section  of  the  form  that  do  not 
relate  to  any  particular  department  but  to  all  departments  alike.  These  expenses 
can  be  pro-rated,  as  (has  been)  shown,  over  all  the  departments,  on  the  basis  of  the 
amount  of  direct  labor  charged  to  each  department,  by  multiplying  this  amount 
by  the  per  cent,  obtained  from  dividing  the  total  amount  of  the  operating  ex 
penses  by  the  direct  labor.  The  department  accounts  will  then  be  charged  with 
all  the  indirect  expenses,  including  the  general  operating  expenses;  and  the  per 
centage  shown  will  represent  the  proper  amount  to  be  added  to  articles  manu 
factured  in  any  one  of  these  departments.  In  the  lower  left-hand  section  of  this 
form  are  indicated  the  store-room  operations.  That  is,  the  value  of  the  inven 
tory  at  the  beginning  of  the  period  as  well  as  the  purchases  during  the  period 
are  shown,  together  with  the  material  delivered  to  operating  departments  during 
the  month,  which  is  recorded  in  the  upper  section  of  this  statement  under  the 
caption  "Direct,"  opposite  the  account  Material.  The  two  amounts  first  men 
tioned  added  together,  less  the  material  delivered,  will  show  the  inventory  of  raw 
material  on  hand  at  the  end  of  the  month. 

OPERATING    LEDGER 

(Form   16  C) 

The  Voucher  System  of  accounting,  introduced  later  in  this  chapter,  is  oper 
ated  in  conjunction  with  a  Distribution  Bock  of  this  character;  although  entries 
may  be  made,  and  in  fact  should  be  made,  in  this  record  from  other  books,  as 
will  be  exp  ained.  The  principal  function  of  this  record  is  to  reduce  the  size 
of  the  Voucher  Register — or  Register  of  Accounts  Payable,  as  it  is  called  in  this 
work — by  keeping  only  general  accounts  in  the  record  just  mentioned.  This 
eliminates  the  numerous  special  columns  that  the  Register  of  Accounts  Payable 
would  otherwise  have  to  contain  in  order  to  save  posting.  The  object  of  having 
these  special  columns  in  the  Accounts  Payable  register  is  to  enter  therein  all  of 
the  charges  re'ating  to  a  particular  account,  and  to  post  the  total  of  all  of  these 
items  in  one  amount  at  the  end  of  the  month,  instead  of  posting  each  separately. 
Consequently  if  the  business  is  divided  into  ten  or  twelve  departments,  and  each 
department  is  divided  into  a  number  of  accounts  showing  an  analysis  of  the 
expenditures  or  charges,  it  can  be  seen  that  a  Register  of  Accounts  Payable  pro- 


322 


FACTORY    ORGANIZATION   AND    COSTS 


oc 

LU 

o 

Q 
U 

O 

z 


cc 

UJ 
Q. 

O 


COMPLETE   COST   SYSTEMS  323 

vided  with  all  of  these  columns  would  necessarily  be  too  awkward  to  handle  and 
impractical  to  say  the  least.  For  this  reason,  if  for  no  other,  a  Distribution  Book 
or  Operating  Ledger  should  be  used  where  these  conditions  exist,  in  order  to 
obtain  a  proper  analysis  of  the  expenditures  relating  to  the  various  depart 
ments. 

A  separate  sheet  should  be  used  for  each  department,  and  all  of  the  accounts 
relating  to  each  department  entered  at  the  head  or  top  of  the  several  columns— 
thirteen  in  all — appearing  on  this  form.  The  posting  to  these  departments 
should  be  taken  from  the  back  of  the  Voucher  described  later,  for  all  of  the 
amounts  appearing  in  that  column  under  the  caption  "Operating  Ledger."  It 
will  be  observed  that  these  columns  read  as  follows:  " Department,  Account 
Number,  and  Amount,"  and  are  intended  to  be  used  to  indicate  the  department 
chargeable,  which  should  be  designated  by  a  letter,  and  the  name  of  the  account 
indicated  by  a  number. 

These  same  account  numbers  and  the  department  letters  should  appear  on 
this  sheet — that  is,  at  the  top  of  the  columns  reading  from  left  to  right.  The 
accounts  may  be  headed,  "Material,  No.  1;"  "Direct  Labor,  No.  2;"  "Indirect 
Labor,  No.  3,"  etc. — meaning,  of  course,  that  Account  No  1,  where  it  appears  on 
the  back  of  the  Voucher,  should  be  entered  in  the  column  headed  "Material" 
for  the  proper  department  indicated  by  letter  on  the  back  of  the  Voucher.  This 
is  explained  in  the  section  of  this  work  referring  to  "Classification  of  Accounts" 
(Chapter  XXVII),  to  which  the  attention  of  the  reader  is  directed. 

When  all  the  postings  have  been  made  to  these  various  departments  in  this 
record,  not  only  from  the  vouchers,  but  also  from  the  other  books  of  account, 
and  the  amounts  entered  in  the  several  columns  according  to  the  account  charge 
able  appearing  at  the  top  of  the  column,  the  totals  for  the  month  should  then  be 
entered  and  this  sheet  ruled  off.  After  these  totals  have  been  proved  or  bal 
anced  with  the  Factory  Account  kept  in  the  General  Ledger,  this  account  would 
include  all  of  the  operating  departments  kept  in  this  Ledger  or  Distribution 
Book,  exclusive  of  selling  and  administrative  expenses  which  appear  separately 
in  the  General  Ledger.  The  selling  and  administrative  accounts  should  also  be 
analyzed  on  a  sheet  in  this  book,  showing  the  distribution  or  analysis  of  these 
two  classes  of  expense.  After  these  accounts  have  been  balanced  with  the  de 
tails  shown  in  the  various  columns  or  accounts,  the  result  of  the  entries  for  the 
month  for  each  department  should  be  transferred  to  a  Summary  Sheet,  which 
should  be  headed  "January,"  "February,"  etc.,  for  the  fiscal  year,  and  the  last 
column  headed  "Total."  At  the  left-hand  side  of  this  form  should  be  entered, 
reading  from  the  top  of  the  sheet  downward,  the  names  of  the  various  accounts 
relating  to  this  department  that  appeared  on  the  previous  sheet  at  the  top  of 


324  FACTORY    ORGANIZATION   AND    COSTS 

the  column.  The  amounts  that  were  entered,  so  far  as  the  total  only  is  con 
cerned,  should  be  transferred  to  this  summary  sheet  and  entered  in  the  column 
according  to  the  month  the  entries  or  transactions  occur  in,  opposite  the  proper 
account;  and  at  the  end  of  the  year  the  total  for  each  of  these  accounts  should 
be  entered  in  the  column  headed  "Total/'  so  as  to  show  the  total  expense  of  this 
description  for  the  year  in  each  department.  After  these  summaries  have  been 
made  up  for  each  department,  a  Summary  Sheet  should  be  prepared,  which,  in 
effect,  is  a  Trial  Balance,  showing  the  departments  at  the  head  of  the  sheet  and 
the  various  accounts  on  the  side  of  the  sheet,  reading  down,  in  the  column  pro 
vided  for  that  purpose.  The  total  of  all  these  departments  and  accounts  should 
be  balanced  with  the  three  principal  accounts,  which  are  really  controlling  accounts 
kept  in  the  General  Ledger — that  is  to  say,  the  Factory  Account  will  include  all 
the  departments  and  accounts,  exclusive  of  selling  expense  and  administrative 
expenses;  and  this  figure  or  amount  should  correspond  with  the  balance  of  the 
Factory  Account  in  the  General  Ledger.  The  total  expenses  shown  as  selling 
expenses  should  agree  with  the  account  in  the  General  Ledger  of  the  same  name, 
and  likewise  the  administrative  expenses. 

Attention  is  called  to  the  fact  that  a  separate  department  should  be  estab 
lished  for  light,  heat,  and  power,  and  this  expense  distributed  among  the  various 
operating  departments  of  the  factory  at  the  end  of  each  month,  on  the  basis  of 
horse-power  consumed  in  each  department — that  is,  either  consumed  or  indi 
cated.  For  a  full  explanation  of  this  the  reader  is  referred  to  the  system  ex 
plained  in  Chapter  XXXVII,  wherein  power  cost  and  distribution  are  fully  set 
forth ;  but  it  is  not  necessary  in  a  system  of  this  kind  to  be  so  precise,  nor  is  it 
practical,  because  of  the  basis  of  this  system,  which  is  quite  different  from  the  one 
mentioned. 

BILLING   SYSTEM 

(Form  17  A) 

CREDIT   CERTIFICATE 

(Form  ISA) 

Both  of  these  forms  have  been  fully  explained  in  Chapter  XXXVI,  and  also 
in  Chapter  XXI;  but  it  might  be  well  to  call  attention  to  one  fact.  The  infor 
mation  for  entering  the  cost  of  sales  or  the  cost  of  goods  returned  should  be  taken 
from  the  Finished  Stock  record,  already  described,  and  this  cost  or  price  should 
in  every  instance  represent  the  average  price  or  average  cost  of  each  article  on 
hand  appearing  in  the  several  stock  sheets  for  finished  products  in  the  column 
headed  "Balance," 


COMPLETE   COST   SYSTEMS  325 

The  reader's  attention  is  called  to  one  principle  involved  in  making  a  com 
plete  distinction  or  separation  between  the  factory  and  the  sales  department— 
that  is,  the  accounts  may  be  so  kept  as  to  have  all  the  profit  shown  in  the  vari 
ous  sales  accounts  or  departments,  which  means  kind  of  goods  sold,  by  including 
or  entering  on  the  Sales  Sheet  the  actual  cost  of  product  manufactured  and  giv 
ing  the  factory  credit  at  cost,  absolutely,  and  showing  in  the  Factory  Account 
only  the  value  of  the  inventory,  no  profit  appearing  whatever. 

The  other  method  is — and  this  the  management  should  consider  carefully— 
to  establish  a  standard  price  at  which  the  various  articles  manufactured  by  the 
factory  shall  be  sold,  theoretically  speaking,  to  the  Sales  Department  by  the 
Factory  Department,  just  the  same  as  if  they  were  separate  and  distinct  indi 
viduals  or  companies,  but  on  the  same  principle  and  in  the  same  way,  so  far  as 
system  or  method  is  concerned,  as  is  provided  for  in  this  chapter.  When  this 
plan  is  followed  the  Factory  Account  should  show  a  profit  or  a  loss  which  will 
represent  the  difference  between  what  the  product  was  sold  for  to  the  Sales  De 
partment  and  the  actual  cost  of  production.  The  chief  advantage  in  adopting  a 
plan  of  this  kind — that  is,  using  a  fixed  or  stated  price  at  which  the  factory  shall 
be  given  credit — is  that  it  puts  the  superintendent  in  the  position  of  making  the 
Factory  Account  show  a  profit,  or  at  least  no  loss,  on  this  basis — providing  he 
approves  and  accepts  the  selling  prices  to  the  Sales  Department.  In  addition  to 
this,  a  plan  of  this  kind  is  particularly  valuable  where  the  product  could  be  bought 
in  the  open  market  from  other  mills  at  possibly  these  regular  factory  prices,  if 
not  actually  cheaper;  and  the  result  will  show  at  the  end  of  the  year  whether  the 
factory  is  able  to  compete  with  other  mills  without  interfering  with  the  progress 
of  the  Sales  Department.  For  that  reason  it  puts  the  management  in  the  posi 
tion  of  being  able  to  hold  each  department  responsible  for  results — the  Factory 
for  producing  the  goods  at  not  more  than  a  stated  price  on  the  one  hand,  and  the 
Sales  Department  for  marketing  the  output  at  a  price  sufficiently  above  the  pur 
chase  price  from  the  factory  to  produce  dividends  for  the  company.  The  prac 
tical  business  man  will  appreciate  the  fact  that,  leaving  out  bookkeeping  and 
systems  entirely,  a  plan  of  this  kind  is  good  business  if  nothing  more,  where  two 
distinct  departments  operated  by  two  separate  organizations  form  a  part  of  the 
general  organization. 

Where  this  plan  is  adopted,  Sales  Sheets  should  be  used,  executed  in  triplicate, 
or  else  an  extra  column  should  be  added  to  the  regular  Sales  Sheet,  which  would 
make  three  columns  in  all — one  showing  the  price  at  which  the  goods  were  sold 
to  customers  by  the  Sales  Department;  the  other  showing  the  price  at  which  the 
goods  were  sold  to  the  Sales  Department  by  the  Factory,  and  the  last  columns 
showing  the  actual  cost  of  production.  In  posting  these  amounts  at  the  end  of 


326 

the  month,  the  entries  should  be  made  as  follows.  The  first  column — that  is, 
the  selling  price  relating  to  customers — should  be  charged  to  customers  and 
credited  to  the  regular  sales  accounts  or  departments;  the  factory  selling  price 
shown  in  that  column — meaning  the  price  at  which  the  goods  were  charged  to 
the  Sales  Department  by  the  Factory — should  be  credited  to  a  Factory  Sales 
Account  and  charged  to  a  regular  Sales  Account  or  department  that  is  cred 
ited  with  the  goods  sold  to  customers.  The  cost  price  column,  showing  the 
actual  cost  of  production,  should  be  credited  to  the  regular  Factory  Account, 
showing  the  inventory,  and  charged  to  the  Factory  Sales  Account  just  men 
tioned. 

The  effect  of  this  will  be  as  follows.  The  Factory  Sales  Account  will  show  the 
profit,  if  any,  between  the  price  charged  the  Sales  Department  and  the  actual 
cost  of  production.  The  Sales  Department — that  is,  the  general  classification  of 
products  sold  to  customers  by  the  Sales  Department — will  show  the  profit  be 
tween  the  amount  charged  the  Sales  Department  by  the  Factory  and  the  amount 
actually  received  for  the  goods  from  customers.  Where  a  factory  price  is  used 
in  addition  to  the  actual  cost  price,  the  profit  of  the  factory,  which  is  really  an 
interdepartmental  profit,  appears  in  the  books  in  addition  to  the  information 
shown  by  the  general  plan  outlined  in  this  system. 

REGISTER   OF   SALES   AND   COSTS 
(Form  19  C) 

The  only  difference  between  this  record  and  the  one  explained  in  the  system 
in  Chapter  XXXVI,  is  that  only  the  total  sales  for  the  day  are  entered  and  classi 
fied.  The  totals  shown  by  all  of  the  Sales  Sheets  for  goods  sold  during  the  day 
would  be  entered  on  this  form,  instead  of  registering  each  sale  as  in  the  former 
case.  This  form  is  also  more  suited  to  a  system  where  three  elements  enter  into 
the  sales — that  is,  the  actual  selling  price,  the  factory  selling  price,  and  the  actual 
cost  price.  The  blank  space  between  the  two  guide  lines  just  above  the  three 
money  columns  is  for  entering  the  distribution  or  classification  of  the  sales  ac 
cording  to  the  kinds  of  products  sold,  representing  numerous  articles  grouped 
together  or  classified  under  these  headings.  This  classification  can  consist  of 
two  or  three  departments  or  as  many  as  may  be  desired,  according  to  the  nature 
of  the  product  and  the  value  of  the  information  to  be  obtained  from  classifying 
the  products  in  this  manner.  It  is  not  necessary  to  divide  the  product  into 
departments  at  all,  as  one  general  account  showing  the  sales  and  profits  on  the 
sales  will  answer  in  some  cases,  but  usually  it  is  desirable.  If  the  product  is 
classified  the  volume  of  business  done  in  each  department  will  be  shown,  together 
with  the  profit  in  each.  The  manner  of  posting  the  information  furnished  by  this 


COMPLETE   COST   SYSTEMS 


327 


(Form  19  C) 


REGISTER   OF  SALES   AND  COSTS 

For  the  month  of                                 19 

DEPARTMENT  "A" 

DEPARTMENT  "B"               DEPARTMENT  "C''                DEPARTMENT  "D"              DEPARTMENT  "E1 

DAY 

gs 

MPCRIC°EHY 

Cot>T  PR   CE 

3*3 

FACTORY 
PRICE 

ACTUAL              SALES 
COST  PR  ICE         PRICE 

FACTORY 

1  Hllh 

COST  PR  ICE 

PRICE 

FACTORY 
PRICE 

COST  PRICE 

SALES         FACTORY 
PRICE             PRICE 

COSVTPRICE 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

•21 

22 

23 

24 

25 

26 

27 

28 

!     29 

30 

31 



i 

[ 

Standard  Size  10  X.U 


record  to  the  Ledger  is  fully  explained  in  this  chapter  under  the  caption  "Bill 
ing  Systems. " 

ACCOUNTS    PAYABLE   VOUCHER 

(Form  20  A) 

As  the  name  indicates,  this  form  is  for  the  purpose  of  obtaining  a  proper 
Voucher  for  all  entries  relative  to  expenditures  connected  with  the  business; 
and  is  also  used  in  this  instance  for  purposes  of  classification.  A  separate  Voucher 
may  be  used  for  all  the  transactions  affecting  one  individual  or  company  for  the 
entire  month,  or  several  vouchers  may  be  made  out  during  the  month  whenever 
remittances  are  made.  Attached  to  this  Voucher,  however,  should  be  a  copy  of 
the  Purchase  Order,  showing  the  goods  ordered,  a  copy  of  the  Receiving  Report, 
showing  the  goods  actually  received,  and  the  Invoice.  These  documents  should 
be  attached  to  the  Voucher  for  every  entry  or  invoice  entered  on  the  Voucher. 
These  entries,  after  being  approved,  may  be  made  on  the  Voucher,  as  the  bills 
are  received ;  but  it  is  not  necessary  to  make  the  distribution  until  the  end  of  the 
month,  or  whenever  it  is  desired  to  make  remittances.  In  such  an  instance  the 
invoices  attached  to  the  Voucher  should  be  analyzed  and  the  department  and 
accounts  chargeable  entered  on  the  back  of  the  Voucher  under  the  general  caption 


328 


"Operating  Ledger."  The  total  of  all  these  expenditures,  according  to  the  class 
ification,  entered  in  these  columns  relating  to  the  Factory,  should  be  entered  in 
the  column  headed  "Private  Ledger." 

Any  charges  relating  to  selling  expenses  or  administrative  expenses  should 
be  entered  in  this  Private  Ledger  column  also,  in  order  to  facilitate  classifying 
or  entering  this  Voucher  in  the  Register  of  Accounts  Payable,  next  to  be  men 
tioned.  On  the  other  side  or  section  of  the  Voucher  is  shown  a  standard  classi 
fication  of  accounts,  which  should  be  printed  on  the  Voucher  together  with  the 
account  number.  Immediately  under  these  accounts  appear  the  departments, 
which  are  given  a  letter  instead  of  a  number  for  reference,  in  order  to  save  writ- 


(Foim  20  A   Front 


ACCOUNTS  PAYABLE  VOUCHER 

No. 

Favor  of 

Date  

DATE 
OF  INVOICE 

DESCRIPTION 

AMOUNT  OF 
INVOICE 

DEDUCTIONS 

AMOUNT  PAYABLE 

Approved  for  Payment                                                           Correct 

COMPLETE   COST   SYSTEMS 


329 


ing  the  names.  In  making  the  entries,  therefore,  as  to  distribution,  on  the  back 
of  this  Voucher  in  the  column  headed  "Operating  Ledger,"  only  the  letter  desig 
nating  the  department  and  the  number  of  the  account  should  appear,  together 
with  the  amount.  This  is  intended  to  save  work  and  also  to  use  the  same  names 
for  accounts  relating  to  all  departments  where  the  same  kind  of  expenditures  are 
involved.  In  other  words,  any  of  these  accounts  can  be  charged  to  any  of  the 
departments;  but  not  all  of  these  accounts  would  be  kept,  nor  would  they  affect 
all  departments,  as,  for  instance,  legal  expenses  could  not  possibly  affect  the 
store-room  or  any  of  the  other  manufacturing  departments,  unless  in  the  case  of 
patents  or  some  unusual  circumstances. 


(Form  20  A)  Back 


ACCOUNTS  PAYABLE  VOUCHER 

Date 

CLASSIFICATION  OF  ACCOUNTS 

OPERATING  ACCOUNTS 

1    Material 
2   Direct  Labor 
3   Indirect  Labor 
4  Supervision 
5  Supplies 
6  Light,  Heat  and  Power 
7  Freight,  Express  and  Cartage 
8   Maintenance 
9  Incidentals 
10  Insurance 
1  1   Taxes 
12  Telegraphing  and  Telephoning 
13   Postage,  Printing  and  Stationery 
14  Salaries 
15   Depreciation 
16  Advertising 
17  Traveling  Expenses 
18  Commissions 
19  Legal  Expenses 
20  Interest 
21    Merchandise  Discounts 
22  Doubtful  Accounts 
23   Rent 

DEPARTMENTS 

A 

B 
C 
D 
E 
F 
G 

H 
I 
J 
K 
L 

Favcn- 
Addre: 

of_          _     

* 

OPERATING  LEDGER 

PRIVATE   LEDGER 

DEPT. 

*/cNO. 

AMOUNT 

ACCOUNT 

AMOUNT 

Date  Paid 
Amount  of  Check 
Deductions 
Amount  of  Invoice 

Dheck  No. 

| 

Standard  Size  8>i  x  9% 


330 


REGISTER   OF  ACCOUNTS    PAYABLE 

(Form  21  B) 

This  form  has  been  fully  explained  in  the  system  in  Chapter  XXXV  and  also 
in  the  description  in  Chapter  XXIV,  to  which  the  reader  is  referred.  The  prin 
cipal  difference  in  this  form  and  the  one  explained  in  the  system  in  Chapter  XXXV 
is  that  in  the  former  case  no  departments  were  kept  nor  Distribution  Book  used, 
the  accounts  appearing  on  the  right-hand  side  of  the  sheet;  whereas,  in  this  in 
stance,  a  Distribution  Book  is  used  and  several  departments  are  kept.  For  this 
reason  only  three  general  or  rating  accounts  appear — viz.,  Factory,  Selling  Ex 
penses,  and  Administrative  Expenses.  The  totals  shown  on  the  back  of  the 
Voucher  under  the  caption  "Private  Ledger"  should  be  entered  in  these  columns, 
according  to  the  amount  chargeable  to  each.  The  several  accounts  supporting 
these  general  or  total  figures  are  entered  in  the  Operating  Ledger  according  tc 
department  and  the  account  chargeable. 

At  the  end  of  the  month  the  Factory  Account,  Selling  Expenses,  and  Admin 
istrative  Expenses  should  all  be  posted  to  the  debit  of  these  accounts  in  the  Gen 
eral  Ledger,  after  each  has  been  proved  with  the  several  accounts  in  the  Operat 
ing  Ledger.  All  other  accounts  should,  of  course,  also  be  posted. 


Form  No.  21  B 


REGISTER      OF      ACCOUNTS       PAYABLE. 

CREDITS 

Accounts    Payable 

When  and  How  Paid 

Date 

Voucher  No, 

Favor    of 

Term. 

Folio 

Vouchers  Pajabl 

Date 

Cheque  No. 

Bank 

Standard  Size  14  x  14 


COMPLETE   COST   SYSTEMS 


331 


Form  No.  21  B 


F 

OR          19 

DBBIT8 

MiacellaMei.ua     Accounts 

Operating    Account! 

Property    Accounts 

Name 

Folio 

Amount 

Victor? 

Srfli^  gip.n.~ 

AdinlniMrtlt** 
KKM»*^ 

IUcMn«ir  * 
Tooli 

U.»l  E>u 
fa  BuiMioj 

j 

rumitire  & 
Fiilara 

Standard  Size  14  X  14 

CHECK    VOUCHER 

(Form  22  A) 

There  is  no  material  difference  between  this  Voucher  or  Check  and  any  other 
ordinary  bank  check,  except  that  columns  are  provided  in  which  to  indicate  the 

(Form  22  A)  Front 


Credit  Vouch 
Favor  of  

er  No 

Check  Voucher 
THE  A.  B.C.  COMPANY, 

NEW  YORK. 

No  

DATE 

AMOUNT 
INVOICE 

DEDUCTIONS 

AMOUNT 
PAYABLE 

DATE 

AMOUNT 
INVOICE 

DEDUCTIONS 

sv   IUN7 
PAYABLE 

Check  Voucr 
Pay  to  the  o 

er  No. 

New  York...                       ..190.  _. 

UNION  NATIONAL  BANK. 

NEW  YORK. 

rder  of                                                    _         -              

Dollars 

n  full  payment  of  above  account. 

THE  A.  B.C.  COMPANY 

Treasurer. 

Standard  Size  7M  »  " 


332 


FACTORY   ORGANIZATION   AND   COSTS 


(Form  22  A)  Back 


THE  A.  B.C.  COMPANY, 

NEW  YORK. 


Favor  of 

Credit  Voucher  No. _. 
Check  Voucher  No... 


-Dated .-.190. 


EN  DORSE  ME  NTS. 


Standard  Size 


bills  included  in  the  settlement  and  covered  by  the  Check,  and  any  deductions 
or  claims  that  may  be  taken  off  before  making  settlement.  It  is  intended  also 
to  insure  a  receipt  in  a  comprehensive  and  uniform  manner  for  the  purpose  of 
protection,  reference,  and  record.  This  Voucher  or  Check  is  entered  in  the  Cash 
Book  in  the  usual  way,  and  the  number  of  the  Check  or  Voucher  is  entered  on  the 
back  of  the  Accounts  Payable  Voucher  as  well  as  in  the  Register  of  Accounts 
Payable,  showing  the  Voucher  to  which  the  Check  relates.  The  Check  Voucher 
is  then  sent  to  the  individual  or  company  in  whose  favor  it  is  drawn  just  the 
same  as  any  other  bank  check. 


REGISTER    OF   RECEIPTS   AND    DISBURSEMENTS 

(Form  23  A) 

In  this  form  the  bank  columns  appear  in  the  middle  of  the  book  instead  of 
each  side,  as  in  the  case  of  the  form  described  in  the  system  in  Chapter  XXXVI. 
Otherwise  there  is  no  difference  worth  mentioning.  A  full  explanation  of  the 
manner  of  operating  these  forms  will  be  found  in  Chapter  XXXVI,  and  also  in 
Chapter  XXVI,  describing  these  forms,  to  which  the  reader  is  referred. 

INVENTORY   OF   MATERIAL 

(Form  45  A) 

The  purpose  of  this  form  is  to  test  the  stock  balances  shown  in  the  Stock 
Records  from  time  to  time,  without  waiting  to  take  an  actual  inventory  of  the 
entire  plant.  It  can  also  be  used  to  take  the  regular  inventory,  either  annually 


COMPLETE   COST   SYSTEMS 


333 


(Form  45  A) 


INVENTORY   OF    MATERIAL 


Article--.  ...Location.. 


Book  Inventory- $_ 

Actual  Count $_ 

Difference.  _  $_ 

Cause.  -. 


Date  taken By- 


Standard  Size  5%  x  7 

or  semi-annually.  All  of  the  details  incident  to  the  conditions  under  which  this 
may  be  done,  and  the  advantages  to  be  derived  by  so  doing,  appear  in  Chapter 
XXXVI,  Form  4  B,  and  also  in  Chapter  XXIX,  explaining  several  forms  of  this 
kind  and  illustrating  different  designs  and  the  conditions  under  which  each  should 
be  used. 

STATEMENT   OF    PROFIT   AND   LOSS 

(Form  53  A) 

This  form  differs  only  in  design  from  the  one  explained  in  Chapter  XXXVII, 
in  that  it  is  intended  to  be  used  where  the  sales  are  divided  into  a  number  of 
departments.  Where  these  conditions  exist  the  design  will  occupy  less  space  if 
the  ruling  is  similar  to  this  one.  The  method  of  preparing  the  form  and  the 
manner  of  obtaining  the  information  is  the  same.  The  reader  is  referred  to 
Chapter  XXXVII  for  a  full  explanation. 


COMPARATIVE    BALANCE    SHEET 

(Form  55  A) 


This  is  the  same  form  explained  in  Chapter  XXXVII,  and  no  explanation  is 
needed  here. 


CHAPTER  XXXIX 

PRODUCT   SYSTEM,    ACCORDING   TO   THE    PROCESS    OR   MACHINE    COST 
METHOD    OF   COST   FINDING 

Conditions  Under  Which  to  Use — General  Outline  of  Method — Sundry  Forms  Used — Time  System- 
Use  of  Cost  Sheet — Check  Voucher. 

THIS  system  is  based  on  the  same  principles  described  in  Chapter  XXXVII, 
so  far  as  the  basis  of  the  cost  finding  is  concerned;  but  the  forms  used  incident 
to  determining  the  cost  of  the  articles  produced  are  not  the  same. 

It  is  intended,  as  the  forms  will  indicate,  for  a  more  extensive  business,  and 
differs  also  in  regard  to  the  production  department.  This  system  would  be  best 
applied  in  a  business  or  condition  where  the  product  is  manufactured  for  special 
orders  and  no  stock  is  carried  on  hand.  In  the  former  instance  no  relation  be 
tween  the  production  department  and  the  orders  existed,  but  the  departments 
and  operations  were  all  well  defined.  In  this  system,  however,  the  relation  of 
the  costs  to  the  production  department  is  well  defined,  as  a  standard  line  of  prod 
uct  is  manufactured  and  carried  in  stock  regardless,  in  a  measure,  of  the  orders 
received  from  customers.  The  principal  difference  in  the  two  systems  occurs  in 
this  respect,  as  the  costs  in  the  latter  are  obtained  according  to  article  and  not 
according  to  special  order. 

The  difference  in  the  number  or  design  of  the  forms  is  caused  by  the  difference 
in  the  method  of  operating,  and  the  condition  causing  these  differences  in  design 
should  be  kept  in  mind  in  devising  a  system.  The  small  and  particular  details 
incident  to  any  particular  business,  such  as  special  columns,  technical  headings, 
and  names  of  the  forms,  constitute  a  secondary  consideration  in  designing  a 
system.  The  object  or  principle  involved,  as  well  as  the  kind  of  information  to 
be  obtained,  and  the  manner  of  obtaining  it  so  far  as  it  relates  to  the  basic  prin 
ciples  underlying  the  system,  are  the  main  features  to  be  considered. 

In  this  instance  it  is  assumed  that  a  standard  line  of  product  is  manufac 
tured,  and  that  the  operations  are  well  defined  and  their  relation  to  the  product 
manufactured  definite.  The  principle  involved  necessitates  a  method  of  obtain 
ing  the  expenditures  or  costs  chargeable  to  each  operation  or  machine,  as  well  as 
the  operating  hours  of  each.  With  this  information  the  cost  of  operation  per 
hour  can  be  ascertained.  The  length  of  time  consumed  in  the  manufacture  of 
each  article  produced  in  each  of  these  operations  should  next  be  determined. 


COMPLETE   COST   SYSTEMS  335 

This  time  may  be  multiplied  by  the  cost  per  hour  shown,  which  will  then  show 
the  cost.  The  operating  hours,  together  with  the  cost  relating  to  the  machine 
or  process,  form  the  basis  of  this  plan.  In  a  system  of  this  kind  the  basis  need  not 
necessarily  be  time,  as  in  some  instances  this  is  not  practical.  As  an  illustra 
tion,  the  total  number  of  pounds,  tons,  or  any  other  unit  of  measure  may  be 
used;  and  the  cost  per  pound,  or  ton,  for  each  operation  ascertained.  This  rate 
is  charged  to  the  articles  produced  by  multiplying  the  total  pounds  or  tons  of 
each  by  the  cost  per  pound  or  ton,  etc.  Therefore  the  basis  of  a  system  of  this 
kind  may  be  either  time,  showing  the  cost  per  hour,  or  quantity,  showing  the 
cost  of  any  unit  of  measure.  This  applies  either  to  time  consumed  in  the  manu 
facture  of  an  article,  regardless  of  quantity,  as  a  basis;  or  according  to  the  total 
unit  of  measure  produced  in  connection  with  the  cost  per  unit  of  measure,  re 
gardless  of  the  time  consumed.  The  result  by  either  method,  where  the  condi 
tions  admit  of  it,  will  be  equally  accurate. 

PURCHASE   REQUISITION 
(Form  1  C) 

PURCHASE    ORDER 

(Form  2  A) 

REPORT   OF   MATERIAL   RECEIVED 

(Form  3  F) 

STOCK    CARD RAW   MATERIAL 

(Form  4  A) 

Designs  of  this  character  have  been  fully  explained  in  the  descriptions  relat 
ing  to  these  forms  in  Chapter  XXXVI;  also  in  Chapters  VII,  VIII,  IX,  and  X, 
respectively;  and  the  usual  explanatory  matter  is  here  omitted  for  this  reason. 

» 

PRODUCTION    ORDER 

(Form  5  L) 

In  this  instance  no  Material  Requisition  is  used,  because  this  design  is  so 
ruled  as  to  furnish  a  record  of  the  material  used  in  the  production  of  each  article, 
and  at  the  same  time  to  furnish  written  instructions  to  the  Factory  Department 
concerning  the  kind  of  product  to  be  manufactured. 

All  posting  to  the  Raw  Material  records  for  material  used  should,  therefore, 
be  made  from  this  record;  and  the  total  cost  of  the  material  should  be  charged 
on  the  Cost  Sheet  in  total,  against  the  article  manufactured  for  which  the  mate 
rial  was  used.  After  the  Raw  Material  account  has  been  credited  and  the  article 


336 


FACTORY    ORGANIZATION   AND    COSTS 


charged  in  the  Cost  Record,  this  form  should  be  filed  in  a  binder  and  arranged 
according  to  the  article  manufactured  from  this  material. 


PRODUCTION  ORDER  No.... 

To  Foreman         Department  Date. 

You  are  hereby  authorized  to  manufacture  the  following; 

MATFRIAL.  RfQ'jmt:  FOR  ABOVE  ORDER  :       QUANTITY       f  RATE  AMOUNT 

Received  by Authorized  by_ 

Standard-Size  S%^g){ 

TIME   REPORT 

(Form  9H) 

(Form  9  H) 

TIME  REPORT 

Department 

Name Week  ending 19 _ 

Occupation 

PRODUCTION  ___^____  _  TIME  CHARGE 

DATE  ARTICLE  I    MADE     |     DEFECTIVE      |    GOOD    ||   BEGUN   |      FINISHED      |   HOURS    |  °%£n   \  MA£HINE   |        PROCESS 

Correct: 


Standard  Size  5}£  x  7 


These  reports  may  be  made  out  either  daily  or  weekly,  according  to  the  wishes 
of  the  management;  but  in  this  instance  the  Pay  Roll  book  used  is  ruled  to  admit 
of  the  time  being  entered  daily  if  desired. 

The  Time  Report  described  in  Chapter  XXXVII  differs  from  this  one  in  two 
essential  features.  In  the  other  system  the  report  is  made  out  by  using  a  time 
stamp.  In  this  system  the  time  is  reported  without  the  use  of  a  clock.  Again, 
in  the  other  instance  a  separate  card  or  Time  Report  was  used  for  each  operation 
by  each  employee ;  whereas  in  this  system  the  employee  may  use  one  Time  Report 
for  the  entire  day  or  week,  entering  the  operations  or  machine  number  in  the 


COMPLETE   COST   SYSTEMS 


337 


columns  appearing  under  the  caption  "Charge."  This  method  necessitates  the 
use  of  a  Summary  Sheet  for  analyzing  the  amount  of  time  chargeable  to  each 
operation  or  machine.  According  to  the  other  method  several  reports  might  have 
to  be  made  out  each  day.  The  result  in  either  case,  of  course,  would  be  the  same. 
The  question  of  convenience  is  the  only  one  involved. 

After  these  reports  have  been  entered  in  the  Pay  Roll  the  total  time  of  each 
employee  should  be  transferred  to  the  Analysis  of  Pay  Roll,  explained  later.  In 
making  these  transferring  entries  only  the  number  of  hours  and  minutes  need 
be  entered  in  the  column,  for  the  time  of  each  employee;  but  it  must  be  kept  in 
mind  that  this  time  must  be  entered  on  the  proper  analysis  of  the  Pay  Roll  sheet, 
as  a  separate  sheet  is  used  for  each  operation  and  the  employee's  number  or  name 
entered  at  the  top  of  this  sheet — that  is,  at  the  top  of  the  column,  of  which  there 
are  several.  If  the  Time  Reports  are  kept  on  a  daily  basis  this  summary  should 
be  made  from  day  to  day;  but  if  the  time  is  reported  weekly  then  it  should  be 
entered  weekly.  At  any  rate  the  total  time  of  each  employee  for  the  week,  charged 
in  each  operation,  should  correspond  with  the  total  number  of  hours  entered  in 
the  Pay  Roll  book  for  the  same  employee  and  for  the  same  period  of  time,  as  the 
total  of  this  Analysis  of  Pay  Roll  for  all  of  these  operations  for  the  week  or  month 
must  correspond  and  balance  with  the  total  shown  in  the  Pay  Roll  book. 

PAY  ROLL 

(Form  10  F) 


(Form  10  F ) 


PAY  ROLL 

For  two  weeks  ending              _                          _19 

DEPARTMENT 

AMOUNT  OF  PAY 

DISTRIBUTION 

NO. 

ROOM 

CLOCK 

so. 

EARNINGS 

DEDUCTIONS 

AMOUNT 
PAYABLE 

MON. 

TUES. 

WED. 

THUR. 

FRI. 

SAT. 

MON. 

TUES. 

WED. 

THUR. 

FRI. 

SAT. 

App 

oved:                                         Correct:                     

Standard  Size  12 


Several  similar  designs  on  this  subject  have  been  presented  in  the  preceding 
systems  and  also  in  Chapter  XIV;  and  it  is  only  considered  necessary  to  mention 
the  fact  that  this  Pay  Roll  book  or  form  is  not  provided  with  columns  for  divid 
ing  up  or  distributing  the  labor  into  direct  and  indirect,  because  this  information 


338 


FACTORY    ORGANIZATION    AND    COSTS 


is  shown  in  detail  in  the  Analysis  of  Pay  Roll,  next  to  be  explained,  according 
to  operation  and  employee,  which  is  all  that  is  necessary  in  the  way  of  distribution. 
Apart  from  this,  this  form  is  the  same  as  the  others,  and  is  to  be  used  for  the 
same  purpose  and  in  the  same  manner. 


ANALYSIS    OF    PAY   ROLL 
(Form  10  L) 

(Form  10  L) 


ANALYSIS  OF  PAY  ROLL 
Operation                                                            -  -    --  -               Month  of  —    -   -  *•&.  . 

DATE 

CLOCK  NO. 

CLOCK  NO. 

CLOCK  NO. 

CLOCK  NO.        |          CLOCK  NO. 

TOTAL 

HOURS 

MINUTES 

HOURS 

MINUTES 

HOURS 

MINUTES 

HOURS 

MINUTES 

HOURS 

MINUTES 

HOURS 

MINUTES 

TOTAL 

RATE 

AMOUNT 

Standard  Size  8x8 


Reference  has  already  been  made  to  this  form  in  the  Time  Reports;  but  the 
final  disposition  of  the  results  obtained  or  furnished  at  the  end  of  the  month, 
relating  to  hours  and  labor  cost,  have  not  been  explained. 

A  separate  sheet  should  be  used  for  each  operation,  and  the  name  or  clock 
number  of  each  employee  entered  at  the  top  of  the  several  columns  running  from 
left  to  right  appearing  on  this  form — that  is,  only  so  far  as  the  employees  engaged 
on  operations  of  this  kind  are  concerned.  The  information  relating  to  time  of 
employees  chargeable  to  this  operation  is  shown  in  the  Time  Reports  of  each  em 
ployee,  as  has  already  been  seen.  At  the  end  of  the  week  or  month  the  total 
number  of  hours  and  minutes  in  each  of  these  columns,  provided  for  each  employee 
connected  with  these  operations,  should  be  shown,  and  his  rate  per  hour  entered. 
The  amount  should  then  be  extended  at  the  bottom  of  the  sheet,  and  the  total 
of  all  these  employees  in  hours  and  minutes,  and  the  labor  cost  relating  to  the 
operations  for  the  week  or  month,  should  be  ascertained  and  entered  in  the  Ma 
chine  or  Process  Cost  records,  to  be  mentioned  later. 

The  total  labor  cost  of  all  these  operations  added  together,  plus  the  indirect 
labor,  should  equal  the  total  amount  of  the  labor  shown  in  the  Pay  Roll  book 
for  the  same  period.  This  form  is  not  used  for  any  other  purpose;  and  after 


COMPLETE   COST   SYSTEMS 


339 


this  information  has  been  obtained  the  object  has  been  accomplished  and  the 
form  should  be  filed  in  a  binder  according  to  operations  and  arranged  according 
to  date. 

PRODUCTION   REPORT 

(Form  11  M) 

This  form,  which  is  also  used  in  Chapter  XXXVIII,  should  be  made  out  in 
the  factory,  and  is  for  the  purpose  of  obtaining  the  total  production  of  the  vari 
ous  articles  manufactured  during  the  month  in  the  several  operations,  including 
the  finished  product.  The  explanation  given  in  the  system  mentioned  regarding 
this  form  applies  here  also,  but  a  separate  report  should  be  made  out  for  each 
operation;  whereas  in  the  former  instance  it  was  only  necessary  to  report  the 
finished  product.  The  total  production  of  each  article  for  each  operation,  accord 
ing  to  this  system,  should  be  transferred  at  the  end  of  the  month  to  the  Cost 
Sheet,  according  to  the  article  produced,  and  entered  in  the  proper  columns, 
showing  the  production  according  to  operation.  Where  the  finished  product  is 
shown  in  the  report,  it  should  be  entered  as  a  deduction  in  the  Cost  Sheet  just 
mentioned.  The  total  cost  as  well  as  the  rate  entered  in  this  report,  should  then 
be  transferred,  so  far  as  finished  product  is  concerned,  to  the  Finished  Stock 
records  and  entered  in  the  column  headed  "Production,"  and  the  balance  shown 
in  the  Stock  Sheet  increased  by  this  amount.  The  report  should  then  be  filed 
in  a  transfer  binder  according  to  operation  and  arranged  according  to  date. 


STOCK   SHEET — FINISHED    PRODUCT 
(Form  12  E) 

(Form  12  E) 


STOCK-FINISHED  PRODUCT                       C|a 

Ma> 
Ml* 

Article.     .                                        _                                       _  .                                                     Bin 

ssification  Is 
imum 

0. 

No. 

PRODUCTION 

ORDERS                                                SALES 

i      UNFILLED 

BALANCE 

:       DATE 

QUANTITY 

RATE        M 

tOUNT 

RECEIVED 

CANCELLED 

SHEET  NO. 

QUANTITY 

RATE        M 

IOUNT 

ORDERS 

QUANTITY 

RATE        AM 

OUNT     i 

1 

1 

Standard  Size  12  x  14 


This  form  has  been  explained  in  Chapters  XVI  and  XXXVIII;   and  with  the 
exception  that  no  columns  are  provided  showing  the  selling  price  and  the  profit 


340 


FACTORY    ORGANIZATION   AND    COSTS 


on  the  article,  it  is  precisely  like  the  one  referred  to  in  Chapter  XXXVIII,  and 
is  to  be  used  for  the  same  purpose  and  in  the  same  way. 

MACHINE   AND    PROCESS   COST   RECORD 

(Form  13  L) 

POWER    COSTS   AND    DISTRIBUTION 

(Form  13  M) 

These  forms  have  been  explained  in  Chapter  XXXVII,  and  all  remarks  made 
therein  apply  here.  The  labor  cost  and  the  number  of  hours,  however,  are  taken 
from  the  Analysis  of  Pay  Roll  described  in  this  system  instead  of  directly  from 
the  Time  Reports,  as  in  the  other  system. 


COST    SHEET 

(Form  13  S) 

(Form  13  S) 


COST  SHEET                                                      N< 
Article         -     -- 

). 

DATE,       DESCRIPTION 

NO.1 

NO.  2                         NO.  3 

NO.  4                          NO.  5 

MRS.   MIN.  QUANTITY 

MRS. 

MIN.  QUANTITY 

MRS.  :  MIN. 

QUANTITY 

MRS. 

MIN. 

QUANTITY 

MRS. 

MIN. 

QUANTITY 

Total  for 
Process  F 
Process  C 
Material  C 
Tot 
n  Proces 
Tot 
n  Proces 
Finished 
Average  C 

month 
ate  per  Hour 
ost 
iost 
al  Cost 
-first  of  month 
al                                                           _      

>-end  of  month.  _          _   _               .      | 

Product 
lost  per  unit 

Standard  Size  '.<>.  x  12 


A  record  such  as  is  herein  illustrated  may  be  designed,  generally  speaking,  in 
two  ways:  first,  by  keeping  a  separate  sheet  for  each  article,  entering  the  de 
scriptive  matter  as  to  time,  production,  cost,  etc.,  on  the  side  of  the  form  reading 
down,  and  the  operations  at  the  top  of  the  sheet  reading  from  left  to  right,  as  is 
shown  in  this  form;  secondly,  the  conditions  may  be  reversed,  the  reading  matter 


COMPLETE   COST   SYSTEMS  341 

as  well  as  the  ruling  of  the  design  arranged  differently,  and  several  articles  en 
tered  on  one  sheet,  as  is  shown  in  Form  No.  13  M  in  Chapter  XVII,  describing 
Cost  Forms.  Either  design  may  be  used  with  this  system,  as  the  result  will  be 
the  same. 

All  necessary  information  as  far  as  time  is  concerned  can  be  obtained  from  a 
summary  of  the  Time  Reports,  according  to  article  and  by  operation;  and  the 
result  may  be  entered  in  this  record  and  charged  to  the  proper  article  according 
to  operation.  In  the  Production  Report  referred  to  in  this  system,  the  produc 
tion  of  each  article  according  to  each  operation  is  shown,  and  should  be  entered 
in  the  same  manner  as  the  time.  These  two  factors  being  obtained,  the  rate  per 
hour  shown  in  the  Machine  or  Process  Cost  records  should  then  be  entered  and 
the  amount  extended,  chargeable  to  the  article  for  each  operation  based  on  the 
time  consumed  in  each  operation.  This  will  then  give  the  total  process  cost  of 
the  several  operations,  to  wrhich  should  be  added  the  material  cost,  which  will 
then  show  the  total  cost  of  the  articles  produced  during  the  month  according  to 
operation.  To  this  should  be  added  the  balance  or  inventory  of  goods  in  process 
of  manufacture  at  the  beginning  of  the  month,  from  which  should  be  deducted 
the  cost  of  the  articles  that  have  been  finished  and  transferred  to  the  Finished 
Stock  records;  the  sheet  will  then  show  the  inventory  of  goods  in  process  of 
manufacture  at  the  end  of  the  month. 

If  desired,  the  production  and  cost  of  each  operation  may  be  transferred  from 
one  operation  to  the  other,  until  the  last  operation  of  finished  product  has  been 
determined.  This  involves  deducting  from  each  of  these  operations  the  cost  and 
the  quantity  transferred  from  Operation  No.  1  to  Operation  No.  2,  etc.;  which 
means  that  the  amount  by  which  Operation  No.  1  would  be  decreased  would  at 
the  same  time  increase  both  the  quantity  and  cost  of  Operation  No.  2,  and  so 
on.  As  a  result  the  inventory,  in  quantity  and  cost,  would  appear  in  each  of 
these  operations  together  with  the  accumulated  cost;  whereas  according  to  the 
other  method  the  quantities  would  appear,  but  the  accrued  cost  in  each  opera 
tion  after  the  first  would  not  appear.  The  unit  cost  according  to  the  operation  of 
the  article  would,  however,  be  more  clearly  shown  than  in  the  method  just  men 
tioned.  In  either  case,  so  far  as  the  cost  is  concerned,  the  result  will  be  the  same, 
but  the  second  method  involves  more  work  than  the  first. 

OPERATING   LEDGER 
(Form  16  C) 

The  subject  treated  by  this  form  has  been  thoroughly  discussed  in  Chapter 
XXXVIII,  and  under  Chapter  XX  describing  various  forms  of  this  character. 


342 


FACTORY   ORGANIZATION   AND    COSTS 


BILLING   SYSTEM 

(Form  17  A) 

CREDIT    CERTIFICATE 

(Form  ISA) 

These  forms  are  explained  in  the  systems  in  Chapters  XXXVI  and  XXXVIII, 
and  also  in  Chapter  XXI,  describing  such  forms. 

DAILY   ANALYSIS    OF   SALES    AND    COST 
(Form  19  B) 

(Form  19  B) 


DAILY  ANALYSIS  OF  SALES  AND  COST 

Dat« 

d                                               19 

A 

B                         C 

D            |l             E             ! 

F 

G 

H 

SALES 

COST 

SALES 

COST       , 

^A.FS 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

n 

1 

J 

K 

L 

M 

N 

0 

P 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

SALES 

COST 

1 

Standard  Size  U><  x  16 


Where  a  number  of  departments  are  kept  and  the  sales  classified  according 
to  these  departments,  both  at  the  selling  price  and  cost  price,  and  where  it  is  not 
necessary  to  make  a  regular  abstract  of  the  sales  showing  to  whom  sold,  Sales 
Sheet  number,  the  amount  of  the  sale,  etc.,  a  General  Summary  sheet  will  be 
better  adapted  to  these  conditions  than  any  other  kind  of  form,  where  the  sales 
are  particularly  active.  Where  customers  buy  a  great  number  of  articles  which 
have  to  be  classified  under  several  different  headings  in  a  record  of  this  kind, 
this  form  is  presented  as  a  result  of  the  experience  in  connection  with  operating 
systems  under  such  conditions. 

The  results  shown  should  be  posted  and  handled  as  in  the  preceding  system. 

REGISTER    OF   ACCOUNTS    PAYABLE 

(Form  21  B) 

For  explanation  see  Chapters  XXXV  and  XXXVIII,  and  also  Chapter  XXIV, 
explaining  sundry  forms  of  this  character. 


COMPLETE   COST   SYSTEMS 


343 


CHECK   VOUCHER 
(Form  22  B) 


THE  A.  B.  C.  CO.                                             Check  Voucher  No._ 
Favor  of 

DATE  !|       AMOUNT  OF  DEOUCT,ONS  AMOUNT  AMOUNT  OF  DEDUCT|ON8  AMOUNT 

INVOICE  PAYABLE  INVOICE  PAYABLE 

I, 

DISTRIBUTION 
DEPARTMENT 

ACCOUNT        ACCOUNT       ACCOUNT       ACCOUNT        ACCOUNT       ACCOUNT 
NO NO. NO NO. NO NO. 

Approved  for  Payment:  Correct: 

Standard  Size  7ft  *  7« 
iForm  22  B) 

I- 
lil 

I 
K 

O 

a 

z 

HI 

Check  Voucher  No New  York 19... 

FIRST  NATIONAL  BANK 

NEW  YORK 

Pay  to  the  order  of $ 

Dollars 

In  full  payment  of  account 

THE  A.  B.C.  COMPANY. 

President  Secretary 

Standard  Size  ?K  »  VM 


The  difference  between  this  form  and  the  one  explained  in  the  preceding 
system  is  that  this  Voucher  is  a  combination  of  the  Accounts  Payable  Voucher 
and  the  Check  Voucher  just  mentioned.  The  date  and  amount  of  the  invoice, 
together  with  any  amount  deducted  for  discount  or  allowances,  as  well  as  the 
net  amount  payable  appear  in  the  upper  section,  on  the  inside  of  the  Voucher; 


344  FACTORY   ORGANIZATION   AND    COSTS 

whereas  the  distribution,  specifying  the  department  and  account  chargeable, 
appear  in  the  lower  section.  The  section  showing  to  whom  the  amount  should 
be  paid  and  constituting  an  order  on  the  bank,  appears  on  the  back  of  the  Voucher. 
All  postings  to  the  Operating  Ledger  as  to  distribution,  as  well  as  the  manner  of 
entering  this  Voucher  on  the  Register  of  Accounts  Payable,  should  be  handled  in 
the  same  way  as  the  Accounts  Payable  Voucher.  When  this  Voucher  is  paid, 
however,  it  should  be  entered  in  the  Cash  Book;  whereas  in  the  other  system  a 
separate  Check  Voucher  was  made  out  in  addition  to  the  regular  Accounts  Pay 
able  Voucher.  When  this  Voucher  is  sent  to  the  individual  or  company  in  wrhose 
favor  it  is  drawn,  all  documents  referred  to  in  describing  the  other  Voucher  should 
be  detached  until  this  Voucher  is  returned  by  the  bank  after  having  been  paid. 
The  documents  in  question  should  then  be  attached  and  this  Voucher  filed  ac 
cording  to  number,  as  is  explained  in  the  system  preceding  this  and  also  in  Chap 
ter  XXV,  relating  to  Vouchers. 

CASH  BOOK,  23  A.     See  Chapters  XXVIII  and  XXXVI. 
INVENTORY  OF  MATERIAL,  45  A.     See  Chapters  XXIX  and  XXXVIII. 
PROFIT  AND  Loss  STATEMENT,  53  A.     See  Chapters  XXXI  and  XXXVII. 
BALANCE  SHEET,  55  A.     See  Chapters  XXXI  and  XXXVII. 


CHAPTER  XL 

MECHANICAL   OFFICE   APPLIANCES 

"  Special  attention  is  called  to  the  fact  that  not  a  line  of  this  chapter  is 
advertising — paid  or  otherwise — and  the  only  object  of  the  author  is  to  acquaint 
the  reader  with  modern  methods  of  this  character,  and  to  give  an  idea  of  their 
value.  The  only  names  given  are  those  necessary  to  describe  the  device.  If  the 
reader  does  not  already  know  the  company  manufacturing  the  machine  in  which 
he  may  be  interested,  the  author  will  be  glad  to  furnish  this  information." 

Purpose  of  this  Subject  in   the  Work — How  Appliances  are  Explained — General  Advantage — 

Proper  Conditions  under  Which  to  Use. 

THE  purpose  of  introducing  a  chapter  on  modern  office  devices  in  a  work  of 
this  kind  is  to  present  information  to  the  manufacturer  which  may  aid  him  in 
the  organization  of  his  office  and  in  the  handling  of  the  immense  detail  con 
nected  with  the  majority  of  manufacturing  plants.  In  compiling  the  various 
records  that  must  be  made  the  saving  of  time  is  a  very  important  item,  provided 
it  can  be  accomplished  without  a  sacrifice  of  accuracy.  The  clerk  hire  generally 
necessary  in  the  office  of  a  large  plant  acts  as  a  dead  weight  on  the  profits,  and 
any  device  which  promises  to  lighten  this  burden  on  the  cost  of  production  is  at 
least  worth  careful  consideration.  Also,  since  the  general  purpose  of  mechanical 
office  devices  is  to  lessen  the  indirect  expenses  of  a  factory,  the  discussion  of  the 
topic  is  clearly  within  the  scope  of  a  book  on  Factory  Costs. 

It  is  purposed  as  far  as  possible  to  explain  the  various  mechanical  devices 
without  specifically  endorsing  or  recommending  any  particular  machine;  and  it 
is  hoped  that  the  reader  will  be  able  from  the  information  furnished  to  form  an 
opinion  as  to  what  particular  machine  or  device  will  be  of  most  benefit  to  him 
in  the  conditions  existing  in  his  business.  Should  the  information  not  be  suffi 
ciently  clear,  it  would  be  well  for  the  reader  to  send  for  a  descriptive  catalogue 
or  for  a  representative  of  the  company  manufacturing  the  device  in  which  he  is 
interested.  As  stated  in  the  note  at  the  head  of  the  chapter,  the  author  will  be 
glad  to  furnish  such  information  as  he  is  able. 

The  position  of  the  author  in  connection  with  modern  office  devices  is  one  of 
unqualified  approval  of  the  subject  as  a  whole.  This  is  a  long  way  from  approval 
of  particular  machines.  In  fact,  conditions  to  which  office  devices  have  to  be 
adapted  vary  so  much  in  different  instances  that  the  choice  of  a  machine  is  hardly 
a  matter  to  be  dealt  with  on  general  grounds.  Most  of  these  devices  are  invented 


346  FACTORY   ORGANIZATION   AND    COSTS 

for  special  purposes  and  to  meet  special  needs,  and  depend  for  their  sale  on  the 
existence  of  the  conditions  for  which  they  were  particularly  devised. 

The  point  to  be  kept  in  mind,  however,  is  that  it  is  just  as  much  an  advantage 
for  the  office  to  have  the  latest  and  most  modern  methods  of  handling  office  de 
tail  as  it  is  for  the  factory  to  have  the  most  modern  machinery  for  handling  the 
product.  It  is  one  phase  of  the  modern  tendency  to  eliminate  useless  labor  and 
to  reduce  costs  to  a  minimum. 

Many  of  the  devices  treated  of  in  this  chapter  are  useful  not  only  in  the  office, 
but  they  may  be  used  in  the  factory  itself  as  a  more  convenient  and  accurate 
means  of  gathering  the  detailed  information,  such  as  hours  of  labor,  time  of  opera 
tions,  etc. ;  essential  items  in  making  out  pay  rolls  and  finding  the  cost  of  different 
articles. 

Four  distinct  advantages  are  urged  in  behalf  of  mechanical  offices  devices  in 
general — viz : 

1.  They  save  time  in  collecting,  arranging,  and  calculating  the  different  items 
that  must  be  handled  in  office  management. 

To  illustrate  this  it  is  only  necessary  to  refer  to  the  function  of  those  time 
stamps  and  clocks  which  register  the  time  of  employees  on  cards  in  such  a  way 
that  the  computation  of  the  week's  pay  is  only  a  matter  of  a  short  addition  and 
easy  multiplication.  If  wage  tables  are  used  even  this  is  dispensed  with,  as 
there  is  then  no  necessity  for  the  double  handling  of  time  records,  a  feature  of 
the  ordinary  methods  of  computing  pay  rolls. 

In  collecting  data  for  finding  costs,  the  time  of  beginning  and  completing 
operations  is  usually  registered  on  cards  by  the  workman  himself  in  writing. 
The  use  of  time  stamps  in  the  factory  effects  a  considerable  saving  of  time  in 
this  respect  alone. 

2.  They  obtain  greater  accuracy  with  less  labor  incurred.     Calculating  ma 
chines  gain  in  accuracy  by  reason  of  eliminating  the  personal  equation  in  the 
operation  itself.     They  serve  to  guard  against  that  peculiar  error  occasionally 
occuring  in  the  calculations  of  the  best  of  bookkeepers,  where  again  and  again 
the  same  error  is  made  at  the  same  point.     The  only  source  of  error  in  these 
machines  proceeds  from  the  recording  of  the  figures  on  the  machines  in  the  first 
place;  and  as  this  is  essentially  a  matter  of  personal  attention,  it  seems  impos 
sible  to  guard  against  it  entirely.     All  this,  of  course,  is  under  the  supposition 
that  the  machine  itself  is  in  order. 

Much  emphasis  should  be  placed  on  the  increase  of  accuracy  in  accounts  fol 
lowing  the  use  of  duplicating  and  mimeographing  devices.  By  means  of  these 
machines  errors  of  transcription  are  entirely  avoided.  Whatever  errors  may 
exist  are  at  least  constant  in  every  record. 


MECHANICAL   OFFICE   APPLIANCES  347 

3.  Through  their  use  the  clerical  force  may  be  reduced,  either  in  actual  dif 
ference  in  numbers  or  in  the  class  of  clerks  hired.     That  is  to  say  that  the  man 
agement  may  often  substitute  a  machine,  with  a  clerk  of  ordinary  intelligence 
and  moderate  pay,  for  the  skilled  employee  whose  wages  are  necessarily  high. 

4.  They  arrange  the  work  in  better  form  for  inspection  and  use  than  do  the 
old  pen  and  ink  methods.     The  printed  tabular  forms  and  loose  sheet  devices 
are  surely  easier  to  deal  with  than  cumbersome  books  and  written  columns, 
which  have  been  used  from  remote  times  in  the  accounts  of  manufacturing  firms. 

In  introducing  a  set  of  mechanical  devices  in  an  office  all  four  of  these  features 
must  be  considered.  The  benefit  derived  in  one  way  may  be  more  than  cancelled 
by  the  accompanying  inconveniences  in  another  direction.  If  there  should  be, 
for  instance,  sufficient  detail  in  an  office  to  keep  one  adding  machine  busy,  and 
if  this  detail  was  so  divided  among  several  clerks  that  one  clerk  would  have  to 
wait  until  another  clerk  was  through  using  the  machine,  the  investment  in  the 
machine  would  be  a  failure  because  of  the  time  lost;  for  in  that  case  the  cost  of 
using  the  machine  would  be  greater  than  the  cost  of  doing  the  same  work  with 
out  it. 

Another  instance  of  this  appears  when  the  time  clocks  or  time  stamps  in  a 
factory,  for  recording  the  time  of  workmen  on  tickets,  are  either  so  few  in  num 
ber  or  at  such  distances  from  the  workman  that  considerable  time  is  lost  in  walk 
ing  from  the  place  of  work  to  the  clock  to  register  and  back  again.  Here  it  is 
clearly  seen  that  what  is  saved  in  accuracy  of  time  reporting  is  more  than  lost 
by  the  time  taken  to  register. 

Mechanical  devices  are  like  many  other  things  in  life — they  must  be  used 
under  proper  conditions  to  obtain  the  proper  results.  Just  as  much  care  should 
be  exercised  in  their  introduction  as  in  the  installation  of  other  new  methods  in 
the  factory,  or  of  a  cost  system  itself.  That  is  to  say,  the  methods  and  the  num 
ber  of  methods  employed  should  depend  entirely  on  the  office  organization. 

There  is  another  phase  in  connection  with  mechanical  devices  which  is  of 
great  importance.  To  be  used  economically  a  machine  must  be  operated  at  or 
near  its  capacity  for  use.  An  operator  of  any  machine  must  be  sufficiently 
skilled  in  its  use  to  obtain  such  results  if  the  machine  is  to  pay.  He  must  be 
able  to  work  it  with  both  speed  and  accuracy,  otherwise  the  work  could  be  done 
more  quickly  and  with  less  cost  by  the  ordinary  use  of  pen  and  ink  and  the  head. 

It  would  be  well  in  many  cases  where  there  is,  say,  only  one  machine  in  an 
office,  for  one  person  to  do  all  the  work  required  on  the  machine,  after  the  man 
ner  in  which  stenographers  are  now  employed.  It  is  only  by  some  such  means 
that  both  the  full  capacity  of  the  machine  and  the  services  of  the  operator  are 
obtained. 


348  FACTORY   ORGANIZATION    AND    COSTS 

There  are  many  extensions  in  connection  with  the  pay  roll  where  from  one 
to  three  persons  are  employed,  taking  from  one  to  three  days  a  week  in  the  calcu 
lation  and  final  arrangement  for  payment.  Should  wage  tables  be  used  in  con 
nection  with  other  proper  mechanical  devices  at  least  75  per  cent,  of  this  time 
might  be  saved.  In  every  case  where  cost  systems  are  in  use,  bringing  with  them 
the  gathering  and  arrangement  of  so  much  detail,  there  is  no  question  that  me 
chanical  devices  would  save  at  least  50  per  cent,  of  the  labor  in  the  compilation 
of  the  many  sets  of  figures. 

To  sum  up  the  present  position,  there  is  no  doubt  that  proper  mechanical 
devices,  in  connection  with  the  handling  of  factory  and  office  detail,  are  just  as 
much  an  important  factor  in  the  reduction  of  the  cost  of  production  by  the  sav 
ing  of  indirect  expense  as  any  other  factor  treated  of  in  this  connection.  The 
questions  remaining  open  relate  to  the  selection  of  such  devices  as  will  be  best 
adapted  to  different  circumstances. 

With  these  brief  general  remarks  on  devices  as  a  whole,  we  will  pass  on  to  the 
consideration  of  particular  classes  of  instruments  and  machines  used.  The  uses 
and  advantages  of  each  will  be  described  as  they  are  taken  up  separately. 

The  mechanical  devices  in  the  market  to-day  which  are  of  value  in  keeping 
up  the  factory  organization,  insuring  accuracy  of  results,  and  the  saving  of  time, 
may  be  classified  as  follows:— 

Calculating  and  computing  machines. 

Adding  and  listing  machines. 

Typewriting  machines  with  mechanical  device  attachments. 

Duplicating  and  printing  machines. 

Addressing  machines. 

Time  clocks. 

Time  stamps. 

Wage  tables. 

Check  stamps. 

The  Phonograph. 

Counting  machines. 

Filing  devices  and  loose-leaf  ledgers. 

These  will  be  considered  and  described  in  the  following  chapters  in  the  order 
given. 


CHAPTER  XLI 

CALCULATING   AND   COMPUTING   MACHINES 

Sixteen  Machines  Mentioned,  of  Which  Six  are  Illustrated  by  Cuts. 

THE  usefulness  of  automatic  calculating  machines  and  machines  which  list 
and  add  at  the  same  time  is  not  even  debatable.  The  increase  in  their  general 
use  in  the  last  decade  is  a  sufficient  answer  to  any  question  as  to  their  place  in 
the  modern  business  world.  Wherever  it  is  possible  to  pass  such  work  over  to 
machines  it  should  be  done,  both  for  convenience  and  accuracy. 

The  performing  of  the  fundamental  arithmetical  operations  has  always  been 
considered  as  an  example  of  the  mechanical  processes  of  the  mind,  and  the  scale 
of  wages  paid  to  such  clerks  is  an  indication  that  the  work  on  which  they  are 
employed  is  not  considered  of  a  high  grade. 

This  general  sentiment  has  existed  for  centuries,  and  one  of  its  natural  results 
has  been  the  endeavor  to  invent  some  kind  of  a  machine  to  do  this  automatic 
work  and  relieve  the  brain  of  all  the  fruitless  toil  involved,  as  well  as  to  avoid 
the  ever-occurring  errors  due  to  mental  operations.  The  famous  endeavor  of 
Charles  Babbage  in  the  early  part  of  the  nineteenth  century  to  construct  a  ma 
chine  that  would  perform  the  operations  of  higher  mathematics  as  well  as  the 
simple  operations  of  arithmetic,  and  at  the  same  time  record  them,  was  the  real 
beginning  of  the  modern  attempt  to  accomplish  this  end,  which  has  resulted  in 
the  several  different  machines  in  the  market  to-day.  None  of  the  later  machines 
have  been  constructed  upon  such  an  ambitious  plan  as  Babbage 's,  but  they  have 
succeeded  in  what  they  have  tried  to  do. 

Calculating  machines  may  be  divided  into  two  general  classes,  those  merely 
indicating  results  and  those  printing  the  result  at  the  same  time  with  the  opera 
tion. 

The  most  common  form  of  the  former  is  the  familiar  "Slide  Rule,"  used  al 
most  universally  by  engineers  for  approximate  calculations.  There  are  a  great 
many  calculators  made  on  the  slide  rule  principle,  some  of  which  are  straight 
and  some  circular  in  shape.  Some  perform  addition  and  subtraction  only; 
while  others  are  adapted  for  multiplication  and  division  as  well  as  for  more  com 
plicated  operations  of  mathematics. 

The  "Thatcher"  and  the  "Omnimetre"  are  examples  of  the  slide  rule  cal 
culators. 


350 


FACTORY    ORGANIZATION   AND    COSTS 


The  cut  shows  the  face  of  the  dial  used  in  the  Sexton's  Omnimetre.  By  com 
bination  of  the  different  dial  plates,  computations  in  no  less  than  ten  different 
functions  of  mathematics  may  be  performed.  These  functions  are  as  follows: 
The  fundamental  operations,  logarithms,  squares,  square  roots,  cubes,  cube  roots, 
fifth  powers,  fifth  roots,  sines  tangents,  versed  sines,  and  secants. 


SEXTONS         OMNIMETRE 


Some  of  the  circular  forms  of  the  slide  rule  are  modified  in  such  a  way  as  to 
make  them  applicable  to  a  great  many  conditions,  and  are  capable  of  complex 
operations.  In  the  Engineering  Magazine  of  July,  1904,  Mr.  Geo.  H.  Seward 
mentions  one,  the  invention  of  Mr.  Carl  G.  Barth,  which  was  able  to  handle  eleven 
of  the  twelve  variables  that  enter  into  the  determination  of  the  most  economical 
way  to  remove  a  required  amount  of  stock  for  a  piece  of  lathe  work,  the  one 
remaining  variable  not  incorporated  in  the  slide  rule  being  the  "Stiffness  of  the 
Work." 


CALCULATING  AND   COMPUTING  MACHINES  351 

It  is  apparent  .that  this  form  of  calculating  may  be  put  to  several  uses  in  the 
factory  itself,  but  is  not  on  the  whole  adaptable  to  commercial  uses  where  the 
results  must  be  exactly  expressed  in  dollars  and  cents.  One  class  of  adders  that 
have  accomplished  this  more  or  less  conveniently  work  on  the  principle  of  revolv 
ing  dials.  Such  are  the  "Calcumetre,"  "Herring's  and  Webb's  Adders."  The 
"Locke  Adder"  is  a  type  of  bar  calculator. 

The  "New  Idea"  calculator  is  designed  to  exhibit  ready-made  multiplications 
occurring  in  pay  roll  and  labor  cost  sheets. 

It  consists  of  two  encased  revolving  barrels,  one  within  the  other;  and,  as 
shown  in  the  illustration,  is  worked  by  two  projecting  knobs  at  either  end.  The 
figures  required  to  represent  the  number  of  hours  or  pieces  appear  in  the  open 
slot  at  the  extreme  left.  The  rates  by  week,  day,  or  hour,  or  prices  per  piece, 
are  stationary  above  the  shutter  movement.  To  find  the  result,  turn  the  inner 
knob  until  a  shutter  opening  shows  beneath  the  desired  rate;  then  turn  the  outer 
knob  until  the  desired  hours  (or  pieces)  show  at  extreme  left.  When  the  result 
appears  in  the  shutter  opening  all  other  figures  are  shut  out.  The  slot  beneath 
the  shutter  is  used  for  divisions  of  the  hour  into  such  fractions  as  may  be  required. 


m»;W7.5t8t:ssi5»m«.^«»^^^^ 


NEW   IDEA       CALCULATOR 


The  "  Arithmachine "  is  an  ingenious  adding  device,  four  and  a  half  inches 
by  one  and  a  half  inches  by  three-fourths  of  an  inch,  which  operates  by  endless 
chains  in  contact  with  a  numeral  disk.  It  is  operated  with  a  stylus. 

Similar  to  it  and  adapted  to  computations  with  larger  numbers  is  the  "Gem" 
adding  machine,  of  which  a  cut  is  given.  The  stylus  is  inserted  in  the  endless- 
chain  gear  and  moved  according  to  the  numbers  operated  on.  The  additions 
show  in  the  register  above  the  fact.  Turning  the  screw  at  the  lower  right  hand 
clears  the  register  and  makes  the  machine  ready  for  the  next  computation. 

Except  in  special  cases,  however,  the  best  results  in  office  work  are  obtained 
by  the  use  of  machines  made  more  on  the  principle  of  the  typewriter,  where  the 
operator  registers  the  figures  by  pressing  down  the  keys  of  the  instrument.  At 
this  point  one  class  of  machines  completes  the  calculations  by  the  use  of  a  crank, 


352 


FACTORY   ORGANIZATION   AND    COSTS 


GEM        ADDING    MACHINE 


THE    "  MILLIONAIRE 


while  the  other  class  indicates  the  results  immediately,  or  by  a  repetition  of  press 
ing  down  the  keys,  if  necessary. 

The  crank  machines  are  fitted  more  for  large  computations,  as  in  insurance 
work,  or  where  there  is  a  great  deal  of  multiplication  to  be  gone  through.  This 
is  generally  done  by  multip  ying  by  one  figure  at  a  time  and  then  combining  the 
results.  For  instance,  if  it  is  wished  to  multiply  by  6,  an  arrangement  of  the 
number  to  be  multiplied  is  made  on  the  machine  and  the  crank  turned  six  times. 

Among  the  principal  crank  machines  are  the  "Millionaire,"  "Unitas,"  "Tri- 


CALCULATING  AND   COMPUTING  MACHINES  353 

umphator,"  "Thomas,"  "Odhner,"  "Tate,"  "Burkhardt,"  and  the  "Baldwin." 
The  "Millionaire"  differs  from  most  other  crank  machines  because,  in  performing 
a  multiplication  or  division,  only  one  turn  of  the  crank  is  required  for  each  figure 
in  the  multiplier  or  quotient,  instead  of  one  turn  for  each  unit  of  each  figure. 
The  carriage  containing  the  multiplier  and  product  rows  shifts  automatically 
instead  of  by  hand.  The  two  factors  always  appear  in  two  straight  lines  just 
above  the  product,  thus  affording  an  easy  check  in  each  calculation.  Any  amount 
set  up  on  the  marker  slides  appears  in  a  straight  line  directly  underneath,  allow 
ing  an  easy  check  by  the  operator. 


THE    "  UNITAS  "    CALCULATING    MACHINE 

The  "Unitas"  is  a  machine  which  has  several  distinct  features.  It  shows, 
in  one  operation,  no  less  than  four  different  elements.  For  instance,  in  the  opera 
tion  of  division  it  shows  simultaneously  the  dividend,  divisor,  quotient,  and 
remainder.  Likewise  in  figuring  discounts  it  shows  grand  total,  percentage,  dis 
count,  and  the  remainder.  The  gear-wheels  are  arranged  so  that  any  one  part 
must  do  its  work  before  another  part  will  move.  This  "running  in  check"  is  a 
guarantee  against  mistakes  in  operation. 

The  cuts  show  the  appearance  of  the  face  of  the  machine.  The  markers 
which  govern  the  actions  are  shown  as  working  in  grooves,  by  the  side  of  which 
are  the  numbers  to  be  operated  on.  There  is  a  "split"  lever  at  the  lower  left- 
hand  corner,  one  part  of  which  controls  the  operations  which  show  in  the  large 
figure  slides,  the  other  part  doing  the  same  for  the  small  figure  slide.  When  the 
two  parts  are  united  they  perform  the  same  operation,  which  is  the  one  indicated 
by  the  setting  of  the  large  part  of  the  lever.  When  they  are  separated  the  opera- 


354  FACTORY   ORGANIZATION   AND    COSTS 

tion  in  the  small  slide  controlled  by  the  smaller  part  is  always  opposite  to  that 
indicated  by  the  large  part.  For  example:  in  division  the  quotient  appears  in 
the  small  figure  slide,  while  the  product  of  the  quotient  and  divisor  appears  in  the 
upper  large  slide,  thus  acting  as  a  check  on  the  operation.  All  figures  can  be 
cancelled  within  a  fraction  of  a  second. 

Machines  similar  to  those  described  above  save  time  and  prevent  any  number 
of  errors  in  dealing  with  long  lists  of  material  and  finding  the  values  of  the  dif 
ferent  items.  It  may  be  said  of  them,  as  in  fact  of  the  majority  of  the  purely 
computing  machines,  that  they  are  assembled  in  small  and  convenient  forms  for 
office  use. 

The  "Comptometer"  and  "Mechanical  Accountant"  may  be  mentioned  among 
examples  of  key-operating  adding  machines  which  resemble  typewriters  in  their 
general  working  methods. 

The  "Comptometer"  is  a  machine  built  to  deal  principally  with  the  four 
fundamental  operations.  Two  numbers  are  printed  on  each  key  on  the  board, 
one  in  black  and  large  in  size,  the  other  in  red  and  small.  The  sum  of  these  two 
numbers  is  always  nine.  There  are  seventy-two  keys  in  all,  allowing  every  com 
bination  needed. 


COMPTOMETER 


For  adding  all  that  is  necessary  is  to  depress  the  keys  corresponding  to  the 
numbers  in  black  to  be  added.  To  add,  say,  459  and  362,  the  operator  would 
depress  first  9  in  the  unit's  column,  5  in  the  ten's,  and  4  in  the  hundred's.  This 


CALCULATING  AND   COMPUTING  MACHINES  355 

may  be  done  simultaneously,  as  the  results  are  recorded  by  separate  columns. 
Then  perform  the  same  process  for  the  number  362,  and  the  result  shows  in  the 
register. 

To  multiply,  one  picks  out  the  multiplicand  on  the  machine  and  strikes  it 
repeatedly,  the  number  of  repeats  depending  on  the  figures  in  the  multiplier. 
Thus,  to  multiply  872  by  675,  the  number  872  is  first  depressed  five  times;  then 
moving  the  same  number,  872,  one  place  to  the  left,  it  is  struck  seven  times, 
which  is  equivalent  to  multiplying  8,720  by  7,  or  872  by  70.  Likewise  moving 
the  872  another  place  to  the  left  and  striking  it  six  times  multiplies  it  by  600. 
The  addition  of  the  partial  product  is  performed  automatically,  and  the  result 
indicated  in  the  register.  The  operations  for  subtraction  and  division  are  slightly 
more  complex  but  similar  in  principle.  Subtraction  is  performed  by  adding  the 
complement  of  the  subtrahend;  while  division  consists  of  a  mechanical  way  of 
performing  repeated  subtractions. 

The  speed  of  the  machine  is  limited  only  by  the  necessity  of  allowing  one  key 
to  resume  its  normal  position  before  striking  another  key  in  the  same  column. 
Considerable  skill  is  required  to  operate  rapidly,  but  no  more  than  in  running  a 
regular  typewriter  with  sufficient  practice.  Results  can  be  obtained  in  less  time, 
perhaps,  than  with  any  other  machine.  Without  such  skilful  operating  it  is  used 
at  a  great  disadvantage.  When  installed  in  an  office  it  should  have  a  regular 
operator.  There  are  several  interesting  and  valuable  features  emphasized  by  the 
manufacturer,  but  which  are  not  germane  to  the  present  description. 

The  "Mechanical  Accountant"  is  another  key-operating  machine,  somewhat 
resembling  the  "Comptometer,"  and  works  on  the  same  general  principle.  In 
addition  to  the  regular  dials  it  has  another  set  working  simultaneously  with  the 
keys  and  indicating  just  what  key  to  strike,  thus  leaving  the  operator  to  prove 
his  work  as  he  goes  along. 


CHAPTER  XLII 

ADDING   AND    LISTING   MACHINES TYPEWRITING    MACHINES    WITH    MECHANICAL 

DEVICE   ATTACHMENTS 

Seven  Machines  Mentioned  and  Six  Illustrated  by  Cuts. 

ALL  the  calculating  machines  spoken  of  thus  far  are  valuable  for  purely  cal 
culating  purposes  only.  Where  it  is  merely  necessary  to  go  through  the  opera 
tions  without  collecting  the  items  they  are  quicker  and  more  economical  in  every 
respect.  Where  they  are  applied  to  lists  previously  made  the  same  is  true.  Their 
use  has  now  spread  until  there  are  comparatively  few  banks  or  large  commercial 
houses  where  one  form  or  another  is  not  employed. 

In  spite  of  the  fact  that  adding  and  listing  machines  seem  to  cover  the  ground 
of  calculating  machines,  there  is  a  wide  difference  in  their  actual  field  of  useful 
ness.  The  listing  machines  are  not  as  rapid  on  the  whole  as  the  others,  since  they 
have  double  work  to  do  and  are  assembled  with  that  end  in  view. 

There  are  several  makes  of  adding  and  listing  machines,  covering  anywhere 
from  a  comparatively  small  part  of  the  office  detail  to  practically  the  whole  field. 
Besides  these  many  of  the  typewriter  companies  are  marketing  their  machines 
with  attachments  capable  of  doing  much  or  all  of  the  listing  and  billing  arising  in 
the  average  commercial  office,  and  some  of  them  have  adding  and  subtracting 
attachments  to  sum  up  the  items  thus  listed. 

Among  the  best  known  adding  and  listing  machines  are  the  "Burroughs," 
"Pike,"  "Comptograph,"  " Addograph,"  "Universal,"  "Wales,"  and  "Duntley." 

The  "Burroughs"  machine  has  practically  the  same  facilities  for  subtracting 
and  dividing  as  were  found  in  the  key- working  calculating  machine.  For  multi 
plying  the  process  is  exactly  the  same  as  in  the  Comptometer.  The  process  of 
subtraction  and  division  may  be  explained  in  detail;  and  it  should  be  borne  in 
mind  that  the  principle  for  doing  these  operations  is  similar  in  all  machines, 
while  the  differences  are  merely  incidental.  One  number  is  subtracted  from 
another  by  adding  its  complement,  and  casting  out  one  from  the  first  place  at 
the  left  of  the  subtrahend.  For  instance:  the  complement  of  7  is  3;  of  82,  18; 
and  of  204,  796,  etc.  Then  9  minus  7  equals  9  plus  3  equals  12,  which  gives  2 
for  an  answer  when  the  one  on  the  left  hand  is  cast  out.  To  make  this  rule  prac 
tical  on  the  machine  the  subtrahend  should  be  preceded  by  a  row  of  nines  to 
the  left-hand  limit  of  the  keyboard.  Now  supposing  it  is  desired  to  subtract 


ADDING   AND   LISTING   MACHINES  357 

6748  from  39867.  On  the  machine  is  placed  a  complement,  or  on  the  keys 
themselves,  as  in  the  case  of  the  "Comptometer."  From  this  the  complement 
of  6748  is  at  once  seen  to  be  3252.  Then  add  as  before,  the  keyboard  looking 

as  follows: 

39867 
999993252 


000033119         33119  is  the  correct  result. 

Since  division  is  a  short  way  of  subtraction,  the  same  principle  of  using  the 
complement  of  the  division  is  used.  For  instance:— 

When  3455  is  divided  by  15,  the  quotient  shows  how  many  times  15  can  be 
subtracted  from  3455.  It  is  found  to  be  23  times,  with  5  left  over. 

The  dividend  3455  is  set  into  the  machine,  and  when  the  handle  is  pulled  it 
shows  on  the  adding  wheels. 

According  to  the  rules  for  subtraction  the  complement  of  15,  which  is  85,  is 
used;  and  since  "15"  is  contained  in  the  "34"  of  the  dividend  "3455,"  it  is  set 
into  the  keyboard  by  depressing  the  keys  in  the  columns  that  correspond  to  the 
adding  wheels  on  which  the  "34"  appears.  A  "9"  is  set  into  the  left  of  the "85," 
making  "985,"  in  order  to  carry  the  first  figure  of  the  quotient  into  the  next 
column. 

Now  set  the  repeat  button  and  draw  the  handle  once.  The  number  101955 
appears  on  the  adding  wheels,  the  "19"  taking  the  place  of  the  "34."  The  "1" 
at  the  left  indicates  that  the  15  has  been  subtracted  one  time.  Since  the  "19" 
is  larger  than  15,  a  second  subtraction  of  15  can  be  made.  Pull  the  handle  again, 
and  the  number  "200455"  appears.  The  "4"  is  less  than  15,  hence  the  15  can 
not  be  subtracted  again.  The  "2"  at  the  left  shows  that  15  is  contained  twice 
into  34,  and  the  "4"  is  the  remainder. 

Since  15  will  not  go  into  "4,"  release  the  "985"  and  set  it  over  one  place  to 
the  right.  This  sets  the  complement  in  such  position  that  the  15  can  be  sub 
tracted  from  the  "45"  which  shows  on  the  adding  wheels. 

Watch  the  adding  wheels  and  pull  the  handle.  At  the  first  pull  the  "45" 
changes  to  "30,"  and  at  the  second  to  "15."  Since  15  is  contained  into  15,  pull 
the  handle  again,  and  "00"  shows  up,  and  a  "5"  remains  at  the  right.  The 
whole  amount  on  the  wheels  now  is  "23005."  The  "23"  is  the  quotient  and  the 
"5"  is  the  remainder. 

Speaking  of  listing  machines  in  general,  while  these  operations  of  subtraction 
and  division  can  thus  be  performed,  it  should  be  remembered  that  the  greater 
use  is  in  addition  and  multiplication,  for  which  all  the  machines  are  much 
better  fitted. 

The  uses  that  machines  of  this  kind,  which  both  list  and  add,  can  be  put  to 


358 


FACTORY   ORGANIZATION   AND    COSTS 


are  almost  numberless.     By  the  use  of  carbon  paper  duplicates  can  be  made, 
which  can  be  entered  from  the  print  as  permanent  records.     This  is  a  guarantee 
that  all  copies  will  be  alike  and  that  there  will  be  no  error  in  transcribing  accounts. 
Another  valuable  feature  found  in  most  listing  machines  is  the  provision  for  » 
tabulating  figures  in  different  measures  or  in  foreign  money.     Thus  for  particular  j 
purposes  a  machine  may  be  fitted  to  add  columns  of  gallons,  quarts,  and  pints; 
or  square  feet  and  inches;  or  £  s.  d. 

To  meet  the  various  needs  of  different  commercial  houses  many  varieties  of 
machines  have  been  devised.      The  "  Burroughs"  machine  is  made  in  no  less 


BURROUGHS 


than  fifty-eight  different  styles,  many  of  which  are  adapted  only  for  particular 
purposes.  Some  of  them  have  a  "split  device"  by  which  they  can  add  two, 
three,  or  even  more  columns  at  a  time.  When  set  at  "Normal"  the  machine 
does  the  work  of  a  regular  machine,  in  case  of  a  nine-column  machine  with  a 
listing  and  totalling  capacity  of  9,999,999.99. 

When  set  at  "Split  1"  it  lists  and  adds  two  separate  columns  at  the  same 
time;  and  when  set  at  "Split  2"  it  lists  and  adds  a  set  of  columns  of  figures  at 
the  right  while  listing,  but  not  adding,  another  set  of  columns  at  the  left. 

Another  form  of  this  machine,  shown  in  the  cut,  is  one  that  is  especially  de 
signed  for  pay  roll  and  cost  records.  It  is  especially  useful  in  connection  with 
summarizing  information  from  original  records.  It  is  arranged  to  print  and  add 
hours  and  quarter-hours  in  the  left-hand  section,  and  amounts  of  money  in  the 


ADDING  AND   LISTING  MACHINES 


359 


right-hand  section,  with  one  pull  of  the  handle.  In  this  way  a  section  of  the 
pay  roll  may  be  drawn  up  to  show  the  time  and  earnings  of  each  employee,  with 
the  grand  total  of  hours  in  the  column  and  the  dollars  and  cents  in  the  other. 

This  machine  may  be  arranged  also  to  convert  minutes  into  hours  in  the  cen 
tre  section  instead  of  quarter-hours,  as  shown. 

When  used  for  ordinary  \vork,  this  machine  has  a  capacity  of  99,999.99  in  the 
right-hand  section,  and  9,999,999  in  the  left-hand  section,  the  fractional  column 
not  operating  excepting  at  the  will  of  the  operator. 

The  "Pike  Adding  Machine,"  shown  in  the  figure,  is  another  machine  which 
lists  and  automatically  adds  at  the  same  time.  The  proper  keys  are  depressed 
for  the  item  which  is  to  be  recorded  and  added,  and  the  handle  at  the  right  is 
pulled  to  its  farthest  position  forward,  then  released  and  allowed  to  return  auto 
matically.  The  total  wheels  at  the  front  of  the  keyboard  show  at  all  times  the 
amount  accumulated  in  the  machine.  When  the  machine  is  clear  the  wheels 
display  a  row  of  ciphers. 


PIKE    ADDING    MACHINE 


There  is  an  arrangement  for  totalizing  at  any  desired  point,  without  inter 
fering  with  the  grand  total.  This  is  accomplished  by  the  use  of  an  eliminating 
key,  which  allows  the  number  to  be  printed  without  being  combined  with  the 


360 


FACTORY    ORGANIZATION    AND    COSTS 


lists  already  made.     There  is  also  a  "repeat  key"  and  an  "item  counter"  at 
tached  to  the  machine. 

The  "Comptograph,"  of  which  a  cut  is  given,  is  another  machine  with  special 
features  which  make  it  desirable  in  certain  circumstances.     The  work  is  arranged 


in  sheets,  not  in  rolls;  and  there  is  an  automatic  locking  device  which  prevents 
writing  off  the  lower  end  of  the  sheet  or  running  the  sheet  out  of  the  machine. 
Another  valuable  feature  is  that  the  work  is  visible  while  it  is  actually  being 


ADDING   AND   LISTING  MACHINES  361 

printed.  Arrangements  are  made  for  cross-footing,  and  the  keyboard  furnishes 
the  same  facilities  for  computation  previously  described. 

The  "Addograph"  is  a  machine  used  to  combine  the  results  of  an  adding 
machine  with  the  typewriting  machine.  It  performs  the  work  while  the  type 
writer  copies  the  totals.  It  can  be  disconnected  at  any  time,  leaving  the  type 
writer  free  for  ordinary  use. 

The  "Universal"  is,  in  general,  fitted  to  do  the  same  work  as  the  others.  The 
printing  section  and  accumulator  are  so  arranged  that  they  can  be  split,  together 
or  independent  y,  at  the  will  of  the  operator,  between  the  fourth  and  fifth,  fifth 
and  sixth,  sixth  and  seventh,  seventh  and  eighth  banks  of  keys,  making  four 
separate  points  at  which  the  machine  can  be  split  according  to  the  requirements 
of  work  to  be  done. 

When  the  printing  section  and  accumulator  are  split  together,  the  ma 
chine  will  list  but  not  add  in  the  left-hand  column,  and  list  and  add  in  the 
right-hand  column,  carrying  the  total  past  the  split  point  to  the  full  capacity 
of  the  machine;  and  will  print  the  correct  total  while  the  machine  is  so 
split. 

When  the  printing  section  only  is  split,  the  machine  will  add  simultaneously 
in  two  separate  columns  and  print  the  correct  totals,  provided  the  two  separate 
columns  do  not  exceed  the  entire  capacity  of  the  machine.  When  the  accumu 
lator  only  is  split  the  listing  appears  as  a  single  column,  but  only  that  part  of 
the  column  to  the  right  of  the  split  will  be  added. 


UNIVERSAL 


The  "Wales"  and  "Duntley"  are  still  other  examples  of  adding  and  listing 
machines.     Both  are  of  the  types  known  as  "Visible"  writers. 


362  FACTORY   ORGANIZATION   AND    COSTS 

TYPEWRITING   MACHINES   WITH   MECHANICAL   DEVICE   ATTACHMENTS 

The  use  of  the  typewriter  in  offices  is  so  general  and  has  been  for  so  long  an 
established  custom  that  any  space  given  to  their  description  would  be  entirely 
superfluous.  Lately,  however,  there  have  been  attachments  added  to  the  ma 
chine  which  list  and  add  in  the  manner  described  above.  The  advantage  of  such 
attachments  in  an  office  where  the  conditions  do  not  justify  the  expenditure  for 
a  separate  billing  machine  is  obvious.  It  brings  a  greater  per  cent,  of  this  de 
tailed  labor  into  the  same  class  with  ordinary  letter  writing. 


REMINGTON 


The  "Wahl"  attachment  on  the  "Remington  Typewriter"  may  be  mentioned 
as  an  example  of  this.  It  supplies  the  advantages  connected  with  an  adding 
machine  and  in  no  way  interferes  with  the  use  of  the  typewriter  in  its  ordinary 
functions.  The  attachment  consists  of  a  totalizer  or  adding  mechanism  which 
travels  on  the  carriage  truck,  and  an  actuating  mechanism  which  is  connected 
directly  with  the  figure  keys  of  the  typewriter.  This  mechanism  may  be  dis 
connected  where  desired  by  moving  a  lever,  and  even  when  it  is  connected  with 
the  figure  keys  of  the  typewriter,  the  machine  will  not  add  except  as  the  totalizer 
passes  over  a  driving-wheel  at  the  writing  centre.  The  totalizer  moves  freely 
on  the  truck,  and  may  therefore  be  shifted  easily  to  any  position  on  the  scale. 


ADDING  AND   LISTING  MACHINES 


363 


This  allows  the  adding  of  columns  at  any  part  of  the  sheet  or  the  mounting  of 
additional  totalizers  on  the  rack. 

Subtraction  is  provided  for  by  a  mechanism  that  will  make  it  as  simple  as 
addition,  and  avoids  the  roundabout  methods  usually  necessary.  Its  use  in 
inserting  discounts,  credits,  freight  allowances,  etc.,  in  billing  work  makes  this  an 
important  feature,  besides  which  it  allows  the  easy  correction  of  errors  in  addi 
tion  caused  by  the  operator  striking  the  wrong  keys.  The  cut  will  show  the 
general  appearance  of  the  machine  with  the  attachment. 


ELLIOTT-FISHER 


The  "Elliott-Fisher  Standard  Writing- Adding  Machine"  is  a' modern  device 
covering  practically  the  whole  field  of  office  work.  It  provides  for  doing  much 
of  the  work  at  one  writing,  thus  avoiding  the  necessity  of  re-handling.  The  ma 
chine  comes  mounted  on  a  special  table  so  fitted  that  the  work  can  be  done  on 
loose  leaves  of  any  size  whatever;  or  it  will  accommodate  regularly  bound  books, 
and  make  its  entries  directly  on  the  pages. 

A  free  downward  stroke,  a  considerable  swing,  provides  for  as  many  as  twenty 
copies  at  once  if  desired,  by  using  carbon  paper;  and  these  copies  may  be  ar 
ranged  so  as  to  give  all  or  any  part  of  the  records  shown  on  the  original.  The 


364  FACTORY    ORGANIZATION   AND    COSTS 

t 

surface  upon  which  it  writes  is  flat  and  stationary,  and  this  lends  considerable 
freedom  to  the  movements  of  the  machine. 

The  cut  shows  the  general  appearance  of  the  billing  adding  machine,  which 
differs  in  some  details  from  the  bookkeeping  machine.  Although  the  adding 
mechanism  is  an  integral  part  of  the  machine  it  is  under  separate  control  of  the 
operator,  and  may  be  disconnected  by  moving  a  shift-lock. 

The  adding  register  remains  fixed  over  each  column;  and  as  the  items  are 
written,  when  the  printing  action  comes  to  this  column,  the  depressed  keys  engage 
the  adding  mechanism  and  the  register  records  the  written  number  in  its  proper 
unit  or  decimal  place,  and  adds  the  figures  of  the  item  to  those  already  accumu 
lated  in  that  column.  When  fully  equipped  the  twenty-four-inch  machine  has 
fifteen  different  adding  registers,  and  writes,  manifolds,  tabulates,  and  adds  sep 
arately  in  each  one  in  a  single  operation. 

Most  of  the  standard  typewriter  companies  now  have  attachments  or  exten 
sions  on  their  machines  which  fit  them  for  making  out  statements,  bills,  etc.; 
and  some  have  adding  attachments  also.  The  Duntley  machine,  before  men 
tioned,  is  connected  in  this  way  with  the  Monarch  Typewriter.  This  adds  ma 
terially  to  their  value  in  the  office.  The  bill  is  printed  directly  over  the  sales 
sheet  as  in  the  regular  billing  adding  machines,  and  by  the  use  of  carbon  paper 
the  two  records  are  made  simultaneously.  Their  principal  disadvantage  in  this 
work  is  that  they  do  not  work  on  a  flat  surface,  which  to  a  degree  limits  their  use. 


CHAPTER  XLIII 

MULTIGRAPHS   AND    MIMEOGRAPHS 
Five  Different  Machines  and  Four  Illustrated  by  Cuts. 

IN  the  sending  out  of  circular  letters  or  similar  material  where  there  are  sev 
eral  repetitions  of  the  same  statements  to  be  made,  the  typewriter  properly  gives 
way  to  some  form  of  multigraphing  or  mimeographing  machine.  It  is  often 
desirable  to  get  out  a  thousand  or  more  copies,  and  the  typewriter  or  billing 
machine,  using  carbon  paper,  can  at  best  duplicate  the  reading  matter  compara 
tively  few  times. 

The  original  forms  of  the  multigraph  employed  gelatine  pads  or  clay  prepara 
tions  with  special  ink.  This  form  is  hardly  suitable  for  business  demands,  both 
on  account  of  the  trouble  in  making  the  master  records  and  the  limited  number 
of  copies  that  can  be  obtained  with  one  impression.  Some  form  is  needed  where 
the  master  copy  can  be  easily  made,  and  where  if  desired  an  indefinite  number  of 
copies  may  be  taken  at  an  economical  rate  of  speed. 

One  form  of  machine  accomplishing  this  result  does  so  by  the  use  of  specially 
prepared  paper,  which  is  perforated  and  used  on  the  principle  of  the  ordinary 
stencil.  As  a  class  these  may  be  designated  as  stencil  mimeographs,  and  the 
•"  Rotary  Neostyle"  and  "  Edison  Rotary  Mimeographs  "  may  be  taken  as  examples. 

The  stencil  paper  itself  consists  of  a  specially  open  and  long-fibred  prepared 
stencil  sheet  coated  with  a  patented  wax  composition,  behind  which  is  placed  a 
silk  sheet  called  the  "perforating  silk,"  when  it  is  designed  for  use  on  the  type 
writer. 

The  paper  that  is  designed  to  reproduce  handwriting  does  not  have  this  silk 
backing,  but  is  placed  directly  over  a  steel  plate  in  which  are  cut  intersecting 
corrugations  producing,  whenever  a  stylus  is  passed  over  the  surface,  fine  punc 
tures  in  the  line  of  writing.  These  corrugating  points  are  so  fine  and  minute  as 
to  be  invisible  to  the  naked  eye,  each  one  being  but  a  two-hundredth  part  of  an 
inch  from  the  next. 

For  autographic  purposes  the  stencil  sheet  is  placed  face  down  in  a  frame, 
pressed  into  place,  and  locked  there  with  tightening  catches.  The  sheet  of  paper 
upon  which  the  copy  is  to  be  printed  is  placed  upon  a  blotter  resting  upon  a  board 
beneath  the  stencil  sheet,  and  an  ink  roller  is  passed  over  the  sheet,  forcing  the 


MULTIGRxlPHS   AND   MIMEOGRAPHS  367 

ink  through  the  perforations  onto  the  paper.  An  indefinite  number  of  copies 
can  be  taken. 

For  office  purposes,  however,  the  form  that  is  used  on  the  typewriter  is  more 
convenient  and  effective  in  every  respect.  The  stencil  sheet,  backed  by  the  silk 
and  an. oiled  board,  is  inserted  in  the  typewriter,  first  covering  the  face  of  the 
sheet  with  oiled  tissue  paper.  The  operator  then  writes  exactly  in  the  same 
way  as  in  ordinary  typewriting,  with  the  exception  that  no  ribbon  is  used. 

The  stencil  is  made  by  striking  the  type  against  the  combined  sheets  with  an 
even  touch,  which  to  obtain  the  best  results  should  not  be  too  hard.  This  causes 
a  waxed  coating  of  the  stencil  sheet  to  be  removed  and  held  by  the  "  perforating 
silk"  in  the  lines  and  shape  of  the  character  so  struck.  Any  standard  typewriting 
machine  will  make  a  good  stencil  copy. 

In  the  best  forms  of  mimeograph  this  stencil  sheet  is  placed  on  a  cylinder 
and  backed  by  an  ink  pad.  The  ink  itself  is  brushed  or  painted  inside  the  cylin 
der,  and  is  distributed  by  capillary  attraction  through  the  pad.  The  machine 
part  has  now  to  provide  for  making  this  cylinder  pass  over  a  paper  surface  so 
that  the  pressure  will  force  the  ink  through  the  perforations  and  make  the  de 
sired  copy. 


ROTARY    NEOSTYLE 


The  cuts  will  show  the  appearance  of  the  cylinder  and  how  the  stencil  sheet 
is  fastened  on  it.  These  machines,  known  as  "rotary"  mimeographs,  perform 
much  more  rapidly  than  the  others.  The  average  speed  is  from  forty  to  seventy 
copies  a  minute,  or  two  thousand  to  four  thousand  per  hour. 

The  greatest  drawback  to  the  use  of  the  stencil  mimeographs  lies  in  the  trou 
ble  of  arranging  and  preparing  the  stencil  sheet  and  mounting  it  on  the  ink  pad. 
The  cost  of  stencil  sheets  is  also  to  be  considered.  Once  mounted,  however,  an 
unlimited  number  of  copies  may  be  taken. 


368 


FACTORY    ORGANIZATION   AND    COSTS 


The  "Beck"  duplicator  is  an  example  of  the  film  duplicators.  These  are 
very  handy  where  only  a  few,  say  from  twenty  to  sixty,  copies  are  wanted.  The 
original,  written  with  typewriter  or  pen  with  ordinary  ink  and  on  ordinary  paper, 
is  placed  face  downwards  on  the  surface  of  the  film,  which  is  coated  on  a  cloth 
backing,  and  left  for  two  minutes,  producing  the  negative.  Copies  may  then  be 
rapidly  taken  by  placing  sheets  of  plain  paper  over  this  negative.  The  copies 
dry  at  once,  making  it  unnecessary  to  use  blotters. 

The  "Beck"  duplicator  will  reproduce  handwriting  and  typewriting  at  the 
same  time,  and  works  in  two  or  more  colors  if  desired. 


BECK    DUPLICATOR 


The  films  are  arranged  on  rollers,  so  that  when  one  copy  is  made  the  film 
may  be  wound  up  to  a  new  position.  The  ink  is  soon  absorbed  in  the  film,  and 
it  is  not  long  before  another  negative  can  be  made  directly  over  a  place  which 
has  been  previously  used.  This  may  be  repeated  several  times.  The  different 
machines  of  this  type  differ  only  in  details  wrhich  are  of  no  particular  importance. 

The  "Gammeter  Multigraph"  is  a  more  pretentious  machine,  and  differs  from 
the  classes  described  above  by  using  its  own  type,  and  thus  virtually  becoming 
a  multiple  typewriter  or  a  printing  machine  on  a  small  scale.  Instead  of  fur 
nishing  copies  it  reproduces  the  original  with  the  same  type.  It  is  thus  more  of 
an  office  printing-press  than  a  duplicator,  and  finds  its  greatest  usefulness  when 
so  used. 

The  cut  will  show  the  general  appearance  and  arrangement.  The  type  is 
contained  upon  a  revolving  supply  drum  or  cylinder,  which  constitutes  the  left 
half  of  the  machine  as  shown.  As  this  drum  is  revolved  an  indicator  points  to 


MULTIGRAPHS  AND  MIMEOGRAPHS 


369 


the  letter  desired  and  the  pressure  of  a  single  key  throws  the  type  character 
through  a  channel  at  the  right  of  the  machine  on  to  the  printing  drum.  The 
handling  of  the  type  with  the  fingers  is  unnecessary.  There  is  no  keyboard,  but 
every  character  is  thrown  out  on  the  drum  by  the  one  key. 


GAMMETER    MULTIGRAPH 


In  this  manner  each  line  is  set  up  and  spaced.  The  distribution  of  the  type 
is  accomplished  by  the  same  process,  a  distributing  key  sending  each  character 
back  to  its  proper  place. 

For  the  printing  a  wide  ribbon  similar  to  the  tpyewriter  ribbon  is  wound  over 
the  drum  and  the  machine  is  ready.  With  every  turn  of  the  drum  a  copy  is 
turned  out,  the  ribbon  moving  from  one  spool  to  another.  With  a  motor  a  maxi 
mum  rate  of  six  thousand  copies  an  hour  can  be  obtained.  There  is  an  attach 
ment  for  counting  the  number  of  copies  made,  which  acts  on  the  principle  of  the 
cyclometer.  There  are  also  many  useful  secondary  attachments  for  sale  with 
the  machine. 

Electrotypes  can  also  be  used  on  the  "Gammeter,"  thus  enabling  it  to  print 
any  style  of  type  desired.  With  an  electrotype  on  office  form  printing  there  is 
substituted  a  direct  inking  attachment  in  place  of  the  ribbon,  thus  producing  an 
actual  printing  plant  on  a  small  scale. 

Another  machine  using  its  own  type  is  the  "Writerpress,"  which  consists  of 
a  flat  type-bed  upon  which  metal  type  is  arranged  for  printing,  and  a  moving, 
rubber-covered  impression  roller.  The  type  is  set  into  a  type  frame  and  this 
frame  placed  in  the  machine.  The  paper  is  then  fed  one  sheet  at  a  time  against 
the  paper  guide,  and  the  rubber-covered  roller  passing  over  produces  the  desired 
impression,  the  return  automatically  ejecting  the  printed  sheets. 


370 


FACTORY   ORGANIZATION   AND    COSTS 


"  WRITERPRlS  " 

In  addition  to  typewriter  type  any  prirfer's  job  type  can  be  used  if  desired; 
thus  display  lines  and  other  forms  of  type  und  in  advertising  can  be  used  as  easily 
as  ordinary  type.  In  the  same  manner  a  (ut  or  engraving  can  be  placed  any 
where  in  the  type  form  and  printed  with  le  other  copy.  Electrotypes  of  any 
form  can  be  made  to  order,  thus  holding  j  form  for  future  use  when  additional 
copies  of  that  particular  circular  may  be  retired. 

The  print  itself  is  made  from  an  inke  ribbon  which  automatically  moves 
across  the  surface  of  the  type  form,  the  i  tensity  of  shade  being  regulated  by 
means  of  impression  screws.  When  set  uj  the  machine  can  be  operated  by  an 
office  boy. 


CHAPTER   XLIV 

ADDRESIXG    MACHINES 
Four  Machines  Mentioed  and  Illustra 

CLOSELY  related  to  the  multignij  \mg  machine! 
machines,  used  where  a  firm  has  a  ocular  list  oi 
suitable  for  addressing  papers  in  a  mvspaper  office 
of  the  machines  will  often  do  the  wck  of  twenty 
Such  a  machine  is  of  great  use  in  listng  n.-  in  a 

ing  envelopes,  for  any  firm  having  a-egular  correspoai 

When  they  are  applicable,  addresing  machine-  repi 
time  and  labor,  at  the  same  time  prducin«r  a  maximum 
from  error.     In  such  cases  they  are  tvery  essential  foat.uk 

The  "  Addressograph  "  is  one  macrine  which  makes  a  s 
It  is  assembled  in  two  ways — one  Tith  a  chain  attachmen^ 
names  rapidly  to  the  printing  centre, ind  the  other  known 
Addressograph,  where  the  printing  isdone  by  me     -  of  a  rubl 
plates  that  have  previously  passed  uder  the  ink  pads.     The  (Sail 
is  best  adapted  for  short  lists;   whilethe  card  index  form  is  esp€<  i;. 
where  the  number  of  addresses  reaoes  five  hundred   or  more.     Th 
show  the  general  way  in  which  the}  work.     The  mechanism  is  sum 
takes  very  little  practice  or  skill  to  oltain  good  results.     As  in  most  Tin. 
chines,  motor  power  may  be  used,  in.vhirh  case  a  maximum  of  threr  tli 
complete  addresses  an  hour  can  be  pinted.     The  addresses  are  easily  Iron 

or  new  ones  inserted,  and  the  whole  se  are  filed  in  metal  drawers  and  kept  n 

f  • 

tor  use  at  any  time. 

The  "Addressograph"  is  often  user. in  pay  departments  for  listing  employee 
names,  numbers,  and  rates  on  pay  shcts.  and  printing  the  same  on  time  cards. 
pay  envelopes,  etc. 

The  "Dupligraph"  is  a  machine  fc  producing  imitation  typewritten  letters. 
It  prints  a  complete  letter,  each  withi  different  address,  and  sinns  a  l';n--simile 
signature  in  different  colored  ink  at  on  impression. 

It  is  used  only  with  the  chain  form  i  the  "Addressograph "  shown.  The  ! ,udy 
of  the  letter  is  set  with  sliding  type,  th  type  merely  sliding  from  the  setting  :ajj§ 
into  the  type-holder,  the  length  of  theietter  line.  In  addition  to  producing  cir- 


372 


FACTORY    ORGANIZATION    AND    COSTS 


"  ADDRESSOGRAPH  "  (MACHINE) 


"  ADDRESSOGRAPH  "  (METAL  PLATE) 


ADDRESSING  MACHINES 


373 


"  ADDRESSOGRAPH  "    (OPERATING    MACHINE) 


Albany  Belting  &  Supply  Co., 

1375  Washington  Ave., 

Albany, N.Y 


"  ADDUESSOGRAPH  ''    (SLIDING    PLATE) 


374 


FACTORY   ORGANIZATION   AND    COSTS 


DUPLIGRAPH 


cular  letters,  the  "Dupligraph"  can  be  used  in  printing  price  lists,  blank  forms, 
instruction  sheets,  specifications,  insurance  forms,  etc.,  etc.  Any  portion  can  be 
changed  without  disturbing  the  balance  of  the  form.  It  runs  either  by  foot 
treadle  or  motor,  and  attains  a  speed  of  from  eight  hundred  to  twelve  hundred 
copies  an  hour. 

The  "Office  Graphotype,"  operated  by  motor,  is  a  simple  machine  for  making 
names  and  addresses  on  metal  plates  to  be  used  in  connection  with  the  "Metal 
Card  Index  Addressograph."  The  average  operator  will  make  from  four  to  five 
hundred  plates  per  day  on  this  machine. 

The  "Belknap"  is  a  stencil  form  of  addressing  machine  which  has  been  suc 
cessfully  used.  The  stencil  plates  themselves  are  not  expensive,  and  it  costs 
from  one-quarter  to  one-half  a  cent  to  do  the  actual  stencilling.  The  machine 
is  capable  of  great  rapidity,  reaching  from  4,000  per  hour  by  foot-power  to  6,000 
and  7,500  by  a  one-tenth  horse-power  fan  motor.  The  stencil  cards  are  trans- 


ADDRESSING  MACHINES 


375 


BELKNAP 


ferred  from  the  cabinet  to  the  distributing  box  of  the  machine;  and  as  each  card 
is  automatically  passed  through  the  machine  it  is  dropped  in  the  receiving  box 
in  its  original  order.  The  card  cannot,  without  intention,  be  duplicated  or 
skipped. 


CHAPTER   XLV 

TIME    CLOCKS 

Eight   Devices  Mentioned  and  Eight  Cuts  Shown. 

THERE  is  no  class  of  mechanical  devices  more  necessary  in  a  factory  than  the 
time-recording  instruments.  The  importance  of  the  time  element  in  the  cost  of 
production  has  been  previously  emphasized,  and  the  consequences  foreseen  if  the 
rules  relating  to  beginning  work  in  the  morning  or  at  noon  and  quitting  at  night 
are  either  slack  in  themselves  or  loosely  enforced. 

This  has  always  been  a  ground  of  dispute — the  employer  feeling  keenly  the 
cumulative  effects  of  repeated  tardiness  on  the  part  of  several  workmen,  and  they 
in  turn  feeling  that  the  few  minutes  they  lost  personally  were  of  no  importance 
and  that  the  protests  from  the  office  were  prompted  by  pure  hoggishness. 

To  put  this  recording  of  time  on  a  business  basis,  it  was  long  the  custom  to 
hire  a  set  of  timekeepers  whose  duty  it  was  to  register  the  men  as  they  passed 
in  and  out;  and  this  manner  of  timing  the  men  is  even  in  large  vogue  to-day. 
The  whole  system  contains  two  faults  which  make  it  ineffective  to  produce  the 
results  desired.  First,  it  adds  a  wholly  indirect  expense  to  the  cost  of  produc 
tion;  and,  second,  it  is  inaccurate.  Even  with  the  best  of  intentions  a  timekeeper 
will  make  mistakes;  and  the  whole  ground  is  left  open  to  favoritism  or  negligence 
of  duties  in  small  things.  That  the  timekeeper  system  is  unsuitable  to  modern 
business  conditions  must  be  the  conclusion  from  whatever  aspect  it  is  examined. 

It  was  the  invention  of  time  clocks  with  mechanical  means  of  registering  the 
coming  and  going  of  men  that  solved  the  difficulty  relating  to  tardiness  and  lost 
time  in  factories.  There  are  several  varieties  of  clocks  now  on  the  market  which 
provide  for  the  making  of  records  automatically  anywrhere  from  a  day  to  a  week, 
without  the  slightest  attention  beyond  that  of  winding.  Their  records  are  sure 
and  indisputable;  and  an  employer  can  now  know  just  what  the  records  of  his 
men  are  with  respect  to  promptness.  The  registering  arrangement  is  naturally 
applied  to  the  making  of  the  pay-roll,  which  is  greatly  simpl  fied  by  this  means. 
The  records  may  be  so  arranged  for  a  week  that  the  time  worked  is  at  once  ap 
parent,  and  the  pay  itself  a  matter  of  simple  computation  or  reference  to  wage 
tables. 

The  use  of  these  clocks  has  also  been  extended  to  the  several  departments 


TIME   CLOCKS  377 

where  they  record  the  beginning  and  end  of  workmen's  jobs.  The  advantage  of 
this  is  at  once  apparent.  If  a  workman  has  to  register  on  his  card  the  "  time 
begun"  and  the  "time  finished"  of  a  job,  he  knows  that  the  records  will  be  a 
matter  of  inspection  and  any  unusual  delay  on  his  part  will  need  explanation. 
The  period  between  the  "time  finished"  record  on  one  job  and  the  "time  begun" 
record  on  the  next  measures  the  time  not  devoted  to  working;  and  as  this  will 
be  shown  by  a  comparison  of  cards  the  whole  time  of  a  man  under  the  super 
vision  of  the  management.  By  a  comparison  with  previous  jobs  and  with  other 
men's  work,  his  exact  status  in  the  factory  is  easily  determined.  Naturally  such 
a  condition  of  affairs  will  lend  no  encouragement  to  "soldiering"  and  wasting 
of  time. 

The  time  so  recorded  is  made  the  means  of  finding  exact  labor  costs  of  arti 
cles,  and  is  of  inestimable  value  in  establishing  an  effective  cost  system.  This 
method  of  cost  finding  also  serves  to  bring  out  the  efficiency  or  lack  of  efficiency 
of  foremen.  One  of  their  duties  is  to  keep  the  work  laid  out  in  advance  in  such 
a  way  that  each  man  will  be  kept  busy  all  the  time.  If  he  has  not  planned  this 
out  correctly  the  interval  between  jobs,  as  shown  by  the  time  cards,  will  tell  the 
story.  It  is  either  the  fault  of  the  workman  or  the  foreman,  and  an  impartial 
judgment  is  very  easily  obtained. 

To  accomplish  these  results  the  instruments  themselves  must  be  accurate, 
and  they  must  be  practically  installed  in  each  department.  Accuracy  is  best  ob 
tained  by  synchronizing  the  whole  system  of  clocks,  the  time  being  corrected 
hourly  from  a  master  clock.  This  is  comparatively  easy  to  do  and  the  expense 
is  slight.  A  greater  number  of  clocks  can  then  be  installed,  the  ct>st  of  each 
being  slight,  as  very  expensive  clocks  are  unnecessary  except  in  the  case  of  the 
master  clock.  It  also  permits  the  workman  to  record  his  "time  in"  and  "time 
out"  in  his  own  department,  and  not  at  the  door  of  the  factory. 

Altogether  it  may  be  said  that  the  registering  time-clock  in  some  form  is  one 
of  the  essential  devices  for  the  proper  organizing  of  a  factory,  and  is  one  of  the 
first  steps  to  be  taken  in  determining  of  actual  costs. 

There  are  several  makes  of  clocks  for  the  purpose  of  automatic  time-recording 
and  cost  keeping  differing  only  in  particulars.  Because  of  this  similarity  it  has 
been  thought  unnecessary  to  insert  cuts  of  all  the  different  kinds  of  clocks,  and 
only  a  few  are  given  for  the  sake  of  illustration. 

The  "International,"  for  instance,  provides  for  nearly  every  phase  of  the 
subject.  The  registering  "In"  and  "Out"  is  done  by  means  of  cards,  one  for 
each  man.  The  cards  are  all  in  one  rack — the  "Out"  rack — each  in  its  particu 
lar  place,  when  the  shop  is  empty.  As  a  man  comes  in  he  takes  his  card  out  of 
the  "Out"  rack,  places  it  in  the  proper  part  of  the  clock,  records  the  time,  and 


378 


FACTORY    ORGANIZATION   AND    COSTS 


iimmmmmmiiiu 


IIIIIHIIIMIMilllllllll 


9991991991919919911911991 


TIME   CLOCKS 


379 


TIME    CLOCK   REGISTERING 


No 


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TIME    CARDS 


380  FACTORY    ORGANIZATION   AND    COSTS 

then  puts  it  in  its  place  in  the  "In"  rack.  The  same  routine  is  followed  as  he 
goes  out,  when  he  changes  his  card  again  to  the  "Out"  rack. 

Thus,  by  a  glance  at  the  racks,  the  superintendent  can  tell  who  are  at  work 
and  who  have  not  yet  come  in.  The  cards  themselves  are  so  arranged  that  the 
time  records  are  easily  summed  up,  and  from  them  is  obtained  the  data  from 
which  the  pay-roll  is  made  out,  Each  employee  can  register  as  fast  as  they  can 
pass  in  single  file.  Provision  is  thus  made  for  an  indefinite  number  of  employees, 
a  great  number  simply  necessitating  a  large  rack.  If  there  are  so  many  men  that 
time  is  lost  in  the  process,  two  or  more  clocks  are  used. 

The  cuts  show  the  International  clock,  together  with  the  racks  on  either  side 
for  the  records  of  jobs  "started"  and  "finished."  There  is  also  a  foreman's  job- 
filing  case,  filled  with  jobs  ahead  for  the  different  men.  As  the  cards  in  the  pock 
ets  on  the  "jobs  ahead"  rack  are  used  up,  the  foreman  distributes  new  jobs  from 
his  filing-case,  taking  care  to  see  that  no  man  has  a  blank  pocket  which  might  be 
the  cause  of  lost  time. 

When  a  workman  takes  a  job  out  of  his  "job  ahead"  rack  pocket,  he  stamps 
the  time  on  it  by  means  of  the  clock  mechanism  and  places  it  in  his  numbered 
pocket  in  a  rack  on  the  opposite  side  of  the  clock  called  "jobs  in  operation." 
This  shows  he  has  a  job  in  hand.  When  he  completes  his  job  he  stamps  his  card 
and  drops  it  into  a  finished  job  receptacle,  and  at  once  takes  another  job  from 
his  "job  ahead"  rack  pocket.  The  advantages  of  this  method  have  been  pre 
viously  shown. 

There  is  also  a  rack  which  records  suspended  jobs,  such  as  those  lasting  over 
night  or  placed  one  side  by  rush  orders.  Of  course  the  time  of  stopping  and 
renewing  work  are  stamped  on  this  card  as  in  the  other  case.  An  arrangement 
is  also  added  providing  for  the  automatic  use  of  a  two-color  ribbon  to  indicate 
"Lates"  or  "Irregulars"  at  a  glance.  The  machine  automatically  lifts  the  card 
to  the  proper  day  and  indicates  its  initial  when  an  employee  registers. 

The  "Bundy  Key  Recorder"  follows  the  same  general  method,  except  that 
in  registering  "In"  and  "Out"  the  employee  uses  a  key  which  records  the  time, 
with  his  number,  on  a  slip  of  paper  inside  of  the  clock.  The  arrangement  of  the 
keys  on  racks  is  similar  to  that  of  the  cards,  there  being  an  "In"  rack  and 
"Out"  rack.  Afternoon  time  is  marked  by  underlining  the  figures,  and  time 
going  out  is  marked  by  a  star. 

There  is  also  a  "  Bundy  Autograph  Recorder,"  which  is  useful  if  the  establish 
ment  is  not  too  large.  It  provides  a  place  for  an  employee  to  write  his  name  and 
stamp  the  time  directly  by  the  side  of  it.  The  "  Dey  Time  Register"  is  of  the  same 
class  as  drum-dial  registers.  A  glance  at  the  cut  will  show  the  general  reason 
of  this  name.  On  these  machines  the  employee  presses  the  pointer  in  the  hole 


TIME    CLOCKS 


381 


opposite  his  number  to  register  the  time  of  arrival  or  departure,  and  a  bell  rings 
indicating  that  the  hour  and  minute  of  the  day  have  been  printed  on  the  record 
inside  the  register.  This  record  is  securely  locked  up  inside  and  is  accessible 
only  to  the  party  in  charge  of  the  machine. 

The  records  are  made  in  any  form,  suitable  for  nearly  all  kinds  of  work.  They 
may  be  registered  by  the  day,  two  days,  or  the  week,  at  two,  four,  six,  or  even 
more,  records  a  day.  The  records  are  arranged  conveniently  in  consecutive  num 
bers,  and  in  a  form  handy  for  making  out  the  pay-roll.  The  "Dey  Machine" 
also  utilizes  the  two-color  ribbon  in  making  its  records. 


"  DEY   TIME    REGISTER  " 

A  separate  machine,  known  as  the  "Dey  Cost  Keeper/'  is  used  in  conjunction 
with  the  "Dial  Machine"  for  cost  purposes.     The  paraphernalia  accompanying 


382 


FACTORY    ORGANIZATION   AND    COSTS 


this  machine  for  use  in  the  departments  for  cost  finding  is  similar  to  those  already 
described,  consisting  of  racks  with  pockets,  with  cards  to  record  the  time  of  dif 
ferent  jobs. 

The  "W.  H.  Bundy  Card  Time  Recorder"  is  another  make  of  clock  fitted  to 
fulfil  the  functions  described  in  the  foregoing  pages.  As  shown  in  the  cut,  the 
arrangement  of  the  "In"  rack  and  the  "Out"  rack  is  the  same  as  the  Inter 
national.  In  registering  a  card  with  a  bevelled  corner  is  used,  which  ensures  the 
correct  way  of  inserting  the  card,  so  that  errors  such  as  registering  on  the  wrong 
side  or  upside  down  are  impossible. 

There  is  also  an  indicator  on  the  clock  dial  to  show  when  winding  is  necessary. 
Attachments  for  marking  tardy  registrations  with  red  ink,  and  also  for  ringing 
bells  at  certain  specified  hours  in  the  various  departments  of  the  factory,  are 
provided,  thus  making  it  useful  as  a  programme  clock. 


"W.    H.    BUNDY   TIME    RECORDER" 

The  "Simplex  Time  Recorder"  carries  this  idea  still  further.  There  is  a  but 
ton  for  each  employee,  and  all  that  is  necessary  for  him  to  do  is  to  press  this  button 
as  he  passes  the  clock. 

The  pressure  of  the  button  operates  a  lever  having  a  steel  recording  point, 
which  makes  an  indelible  perforation  on  the  time  sheet  inside  the  recorder.  The 
time  sheet  is  fastened  around  a  vertical  cylinder  which  revolves  in  unison  with 
the  clock. 

The  employee  cannot  make  a  record  without  ringing  the  bell,  which  rings  with 
each  and  every  record.  Two  records  cannot  be  made  with  one  ring  of  bell. 

An  unlimited  number  of  registrations  can  be  made  by  any  employee  with  abso 
lutely  no  setting  of  recorder  for  "In"  and  "Out." 


TIME   CLOCKS  383 

Any  number  of  employees  may  be  ringing  "Out"  while  others  are  ringing  "In." 

The  "Hawley  Time  Register"  differs  from  the  preceding  ones  by  using  a 
sensitized  paper  on  which  individual  markers  trace  continuous  lines  during  the 
time  "In."  The  rate  is  adjusted  to  move  the  paper  one  inch  per  hour.  It  is  so 
arranged  that  at  the  right  a  space  remains  at  the  end  of  the  week,  in  which  the 
number  of  hours  appear  graphically  on  the  sheet  instead  of  in  figures;  the  rate 
and  the  wages  due  may  be  calculated.  It  is  especially  adapted  for  the  time 
method  of  paying  wages. 

The  "Morse  Time  Recorder"  registers  the  time  by  means  of  knobs  instead  of 
keys  or  cards,  each  employee  having  his  own  knob.  As  he  comes  in  he  turns  his 
knob  down  towards  the  right,  and  his  record  is  registered  inside.  On  going  out 
he  merely  throws  the  knob  back  to  its  former  position.  This  clock  has  the  merit 
of  time  saving,  for  as  many  men  can  register  at  once  as  can  come  in  reach  of  the 
plate  on  the  front  of  the  clock.  "In  actual  service  one  of  these  machines  has 
recorded  ninety-six  people  'out'  in  forty-six  seconds."  While  the  employees 
register  in  the  order  of  their  arrival,  the  records  come  out  of  the  clock  as  if  they 
had  registered  in  their  regular  number  order — one,  two,  three,  etc. 

Many  of  the  machines  described,  in  fact  most  of  them,  have  "Motor  Drive" 
attachments  which  may  be  purchased  with  the  machine.  The  purpose  of  these 
attachments  is  to  lessen  the  actual  work  of  operating  the  keys.  They  are  ar 
ranged  so  that  they  may  be  connected  or  disconnected  with  the  machine  at  will. 

Among  other  functions  performed  by  clocks  the  ringing  of  bells  at  different 
times  in  different  places  should  be  mentioned.  This  is  accomplished  by  a  dial  at 
tachment  in  the  main  clock  case,  which  revolves  and  so  brings  a  series  of  metal  pegs 
in  contact  with  one  of  a  set  of  paralleled  wires.  An  electric  circuit  is  thus  com 
pleted  and  the  bell  connected  therewith  rung  until  the  peg  passes  on.  The  pegs 
are  adjustable,  and  the  clocks  may  be  fitted  to  give  any  system  of  signals,  how 
ever  complex.  Automatic  cut-outs  stop  the  signals  during  the  night  or  over 
Sunday.  An  automatic  calendar  switch  is  furnished  when  the  programme  varies 
from  day  to  day.  These  provide  for  every  day  of  the  year,  even  including  Feb 
ruary  29th  of  leap  year.  Such  clocks  are  known  as  "Programme  Clocks."  The 
"Frick  Programme  Clock"  is  a  well-known  example  of  this  class. 

There  is  a  small  clock  face  called  the  detector  clock,  which  for  running  requires 
a  current  a  trifle  stronger  than  is  necessary  to  ring  the  signal  bell.  When  the 
current  grows  dangerously  weak,  this  clock  stops,  and  automatically  rings  a 
different-toned  bell  to  give  warning  that  the  batteries  need  attention.  The 
Programme  Clock  can  be  used  at  the  same  time  as  a  master  clock  for  synchroniz 
ing  the  clocks  of  a  plant.  One  of  the  contacts  may  release  the  throttle  of  the 
whistle  at  the  time  of  beginning  or  stopping  work.  Altogether  it  is  very  useful 


384 


FACTORY    ORGANIZATION    AND    COSTS 


in  automatically  and  correctly  performing  many  duties  that  would  otherwise  be 
a  course  of  labor,  and  would  always  be  questionable  as  to  accuracy. 

WATCHMAN    DETECTORS 

When  night  watchmen  are  employed  in  or  about  a  plant,  time-registering 
appliances  designed  to  keep  an  exact  record  of  the  time  at  which  a  night  watch 
man  passes  certain  points  again  prove  of  valuable  aid  as  time  detectors. 


WATCHMAN  S  TIME  DETECTOR 


The  recorder  is  placed  in  a  security  lock  in  the  office,  and  connected  by  care 
fully  insulated  wires  to  stations  by  which  the  watchman  is  supposed  to  pass. 
As  he  passes  he  operates  each  station  in  turn,  and  this  causes  a  record  to  be  made 
on  a  sheet  in  the  detector  at  the  office.  The  record  is  generally  made  on  a 
paper  dial,  which  revolves  by  a  clock  movement  and  is  lined  so  as  to  divide 
the  sheet  into  hours  and  minutes.  It  is  also  divided  into  concentric  circles,  each 
of  which  is  devoted  to  one  man.  Thus  several  men  with  different  keys  may  rec 
ord  their  visits  to  a  single  station.  The  record  itself  is  made  by  needles,  each 
punching  a  hole  as  it  is  operated  from  its  own  separate  station. 

If  the  station  is  not  visited,  no  record  appears.  The  wires  are  carefully  insu 
lated  to  prevent  intentional  short  circuits,  which  might  be  made  by  an  unscrupu- 


TIME   CLOCKS  385 

Ions  watchman.  The  mechanism  is  either  actuated  by  an  electric  current  from 
batteries,  in  which  case  the  watchman's  action  at  each  station  is  merely  to  close 
the  circuit,  or,  as  is  often  the  case,  each  station  consists  of  a  magneto  which  is 
operated  by  the  watchman  to  produce  a  current  which  will  affect  the  registration 
on  the  office  dial.  Where  the  magnetos  are  used  there  is  of  course  no  need  of 
batteries.  The  "Simplex"  and  "Watchman's  Time  Detector"  are  examples  of 
the  magneto  type. 

The  most  familiar  applications  of  the  watchman  detector  device  are  the  uses 
made  of  it  in  connection  with  the  telephone  by  the  police  in  our  cities. 


CHAPTER  XLVI 

TIME   STAMPS 

Six  Different  Makes  Illustrated  by  Ten  Cuts. 

ONE  of  the  mechanical  devices  with  a  particular  use  relating  to  time  is  the 
time-stamping  machine.  These  machines  are  made  to  accurately  stamp  the  time 
in  indelible  ink  on  a  card  or  paper.  They  are  particularly  useful  in  a  factory  for 
the  stamping  of  time  cards  of  the  jobs  given  to  the  employees.  In  this  way  they 
perform  the  function  of  the  clock  time  recorders  just  described.  When  it  is  un 
desirable  or  unnecessary  to  have  the  clock  installed,  these  time  stamps  perform 
the  same  office  in  collecting  the  time  spent  on  the  several  jobs,  and  the  records  are 


STANDARD  TIME  STAMP 


387 


made  with  such  certainty  that  their  use  is  advantageous.  There  is  no  appeal 
from  the  records,  for  they  speak  for  themselves  as  to  the  record  of  time. 

The  essential  features  of  a  time  stamp  are  a  clock  that  either  keeps  correct 
time  or  is  synchronized  with  a  group;  a  stamp  and  a  changeable  plate  connected 
with  the  clock  mechanism,  which  records  the  time  shown  by  the  clock. 

The  accompanying  cut  of  the  "Standard"  time  stamp  shows  how  these  may 
be  arranged.  A  shock-absorbing  mechanism  partly  obviates  the  injurious  effects 
on  time-keeping  caused  by  the  repeated  jars  of  the  stamp.  A  locking  mechanism 
is  also  contained,  which  prevents  shifting  while  the  impressions  are  being  taken. 


AUTOMATIC   TIME    STAMPS 


388  FACTORY   ORGANIZATION   AND    COSTS 

The  "Follett"  time  stamp  is  of  the  same  general  appearance,  with  the  differ 
ence  that  the  clock  itself  does  not  turn  the  hour,  minute,  and  meridian  wheels. 
A  special  motor  actuates  them  and  the  clock  merely  releases  these  wheels  at  cor 
rect  intervals,  and  is  thus  relieved  of  .much  of  the  strain. 

The  "Automatic"  time  stamp  is  another  kind,  which,  in  addition  to  indicat 
ing  the  date  and  time,  in  hours  and  minutes  or  tenths  of  hours,  may  be  so  ar 
ranged  that  individual  printing  plugs  may  be  inserted  between  the  dating  device 
and  the  dial  plug,  the  imprint  showing  the  name  or  number  of  the  plug  used  at 
the  time.  This  permits  the  particular  transaction  to  be  characterized  by  a  word 
or  number,  under  which  it  can  be  referred  to  at  any  subsequent  time. 

The  same  company  manufactures  a  modified  form  of  this  time  stamp,  called 
the  "Duragraph."  The  time  cards  or  job  tickets  used  with  this  have  a  repre 
sentation  of  a  clock  dial  with  any  desired  subdivisions  of  the  hours,  together 
with  printed  forms  for  summing  up  the  time  denoted  on  the  dial  and  the  wages 
earned.  The  dial  face  is  so  divided  that  the  elapsed  time  may  usually  be  deter 
mined  at  a  glance  without  any  subtraction  of  hours  and  minutes.  Only  the 
counting  and  addition  of  the  fractional  hour  divisions  indicated  by  the  imprints 
remain  to  be  done. 

The  "Commercial"  time  stamp  differs  from  others  because  it  does  not  in  itself 
contain  the  clock,  but  is  controlled  electrically  by  a  master  clock,  which  may  thus 
synchronize  any  number  of  stamps. 

It  is  made  of  fine  tool  steel  and  so  avoids  any  charge  of  being  delicate  or  easily 
put  out  of  order.  Simplicity  is  its  strong  point,  and  there  is  a  corresponding 
gain  in  strength.  To  this  end  it  omits  the  skipping  device  which  allows  for  the 
odd  ending  of  the  months  and  leap  year,  but  requires  setting  at  the  beginning 
of  each  month.  The  type  wheels  are  actuated  by  a  spring  exerting  a  pull  of  fifty 
pounds  a  minute,  which  makes  the  action  so  strong  that  no  amount  of  gumming 
will  prevent  the  perfect  setting  of  the  type.  The  machine  is  sold  with  a  guarantee 
against  abusive  use  for  a  period  of  twelve  years. 

The  last  two  cuts  of  the  Commercial  Time  Stamp  shows  how  a  time  stamp 
may  be  used  in  a  small  establishment  in  place  of  the  more  costly  time  clocks  to 
register  the  time  "in"  and  "out."  They  may  also  be  used  in  the  different  de 
partments  of  a  larger  factory  to  record  the  passing  of  jobs  through  such  depart 
ments.  The  printed  forms  of  the  cards  herewith  illustrated  show  how  the  records 
appear.  The  card  used  for  recording  the  jobs  in  the  departments  is  particularly 
valuable  as  a  tracer. 

The  "Electric"  time  stamp  closely  resembles  the  "Commercial,"  and  like  the 
"Commercial"  is  synchronized  by  a  master  clock.  It  can  be  used  as  a  time 
recorder  for  cost  keeping  in  the  way  described  just  above. 


TIME    STAMPS 


389 


COMMERCIAL    TIME    STAMPS 


390 


FACTOKY    ORGANIZATION    AND    COSTS 


COMMERCIAL   TIME    STAMP 


No. 

Name 

HS.  MS. 

'our 

IN 

OUT 

,  IN 

OUT 

,  IN 

4 

OUT 

.   IN 

5 

OUT 

6IN 

NOV    4    2-13  PM  1908 

OUT 

7 

OUT 

>  IN 

8 

OUT 

0      IN 

9 

OUT 

10  IN 

OUT 

NOV    4    2-09  PM  1908 

Total  Hours  for  week: 

Ratf»    npr    Knur 

Wapes    rlue   for   wpplf     .^ 

TIME   STAMPS 


391 


TRACER  FOR  ORDER  NO. 

For 


Quan. 

Dia. 

Thick      Hole      Grain     Grade 

DEPT. 

DATE 

Time 
In 
Dept. 

ORDER 

Rec. 

AUG  27    9-00  AM  1908 

Fin. 

AUG  27    4-35  PM  1908 

ELASTIC 

Rec. 

AUG  27  10-00  AM  1908 

Fin. 

AUG  27    10-27  AM  1908 

cii  ir-ATF" 

Rec. 

AUG  27    11-  00  AM  1908 

Fin. 

AUG  27   11-40  AM  1908 

MIXING 

Rec. 

AUG  27    12-00  PM  1908 

Fin. 

AUG  27    12-20  PM  1908 

CM  A  VlVfl 

Rec. 

AUG  27    12-26  PM  1908 

Fin. 

AUG  27     1-01  PM  1908 

K1I  N 

Rec. 

AUG  27     1-17  PM  1908 

Fin. 

AUG  27     1-42  PM  1908 

TRI7INO 

Rec. 

AUG  27     1-59  PM  1908 

Fin. 

AUG  27     2-24  PM  1908 

np  A  niNf; 

Rec. 

AUG  27    2-30  PM  1908 

Fin. 

AUG  27     2-55  PM  1908 

TITQTIlWtf; 

Rec. 

AUG  27    3-00  PM  1908 

Fin. 

AUG  27    3-30  PM  1908 

IN^RFT-TION 

Rec. 

AUG  27     3-14  PM  1908 

Fin. 

AUG  27     3-27  PM  1908 

i>  A  r~  Kivr; 

Rec. 

AUG  27     3-31  PM  1908 

Fin. 

AUG  27    3-49  PM  1908 

c  MII>P>I  Vf^ 

Rec. 

AUG  27    3-59  PM  1908 

Fin. 

AUG  27     4-19  PM  1908 

Return  this  sli 

P 

TOTAL  TIME 

to  Mr  Geo.  N.  Jeppson  when  order  is  finished. 


392 


FACTORY    ORGANIZATION   AND    COSTS 


The  "  Calculagraph "  is  a  combination  time  stamp  and  time  calculator.  It 
actually  subtracts  automatically  the  elapsed  time  between  the  beginning  and  end 
of  a  period,  provided  it  be  less  than  twelve  hours.  In  this  way  it  acts  as  a  stop 
watch,  printing  its  own  results ;  and  bears  the  same  relation  to  time  stamps  that 
the  totalizer  does  to  a  billing-typewriting  machine.  It  avoids  all  error  in  the  sub 
traction  of  one  time  of  day  from  another. 

This  makes  it  a  valuable  device  in  many  different  businesses,  and  one  that 
applies  directly  to  the  timing  of  a  workman  on  a  job.  It  does  away  entirely  with 
the  pencil  and  card  method,  and  avoids  the  errors  of  mental  subtraction  in  the 
office. 

The  machine  itself  looks  like  the  cut.  To  register  the  beginning  of  a  job,  the 
workman  puts  his  card  under  the  plate  and  pushes  the  right-hand  lever.  This 


"CALCULAGRAPH" 


8:        1$         --^  CM-      j4§*        "^  —  i"      (1       *^3 

''&'i'r\^       ^X/?  i  e>xCb  T   ^"A""^ 

TIME  EMPLOYED                                    COMMENCED 

Date 

Job  No. 

MACHINE  SHOP 

Workman  No 

Boring 

Drilling 

Grinding 

Planing 

Time  Allowed 
Tapping 

Chipping 

Facing 

Milling 

Roughing 

Premium  Credit 
Threading 

Cutting  Off 

Filing 

Mounting 

Shaping 

Foreman 
Turning 

Quantity                                  Total  Time^       „        .  .    Rate                         Cost..      .... 

TIME   STAMPS  393 

leaves  an  impression  as  shown  on  the  card  printed.  When  he  is  through,  he 
again  inserts  the  card  and  pulls  back  the  left-hand  lever.  This  prints  the  number 
of  hours  and  minutes  elapsed  on  the  dial  faces,  already  printed  on  the  cards. 
Its  use  and  value  in  the  factory  is  thus  apparent. 

One  of  its  most  prominent  features  is  that  it  can  be  used  for  an  indefinite  num 
ber  of  workmen  at  the  same  time,  because  the  printing  mechanism  is  in  two  parts, 
the  dial  and  the  arrow.  The  dials  only  are  first  printed  by  the  lever  at  the  right. 
During  the  interval  between  any  twro  records,  both  the  dials  and  arrows  revolve 
with  the  clock.  Now,  the  arrows  alone  are  printed,  and  since  their  position  is 
recorded  on  the  old  prints  of  the  dial  faces,  the  elapsed  time  is  automatically  indi 
cated  on  the  face  of  the  card. 

In  cost-finding  work  it  saves  time,  avoids  inaccuracy,  and  makes  the  construc 
tion  of  the  pay  roll  very  easy  indeed,  as  the  time  is  already  calculated  and  the 
whole  time  is  simply  the  sum  of  the  different  items. 


CHAPTER  XLVII 

WAGE   TABLES CHECK    STAMPS — THE    "PHONOGRAPH" COUNTING   MACHINES 

Four  Different  Devices  Illustrated  by  Six  Cuts. 

WAGE  TABLES  have  been  mentioned  before,  but  it  is  well  to  emphasize  the 
time  saved  by  their  use  in  making  out  a  large  pay  roll.  They  come  arranged  to 
record  the  total  wages  of  any  number  of  days  or  hours  at  any  reasonable  rate 
per  day  or  hour,  and  cover  practically  the  whole  field  of  the  time  method  of  pay 
ing  wages.  A  little  practice  will  give  a  clerk  sufficient  skill  to  cut  the  usual  time 
occupied  at  this  work  in  half.  "Brain's"  tables,  and  others  of  a  similar  char 
acter,  are  widely  used  in  plants  having  a  great  many  employees.  In  the  "  Brain's" 
tables  the  time,  rate,  and  amount  are  all  in  one  square  and  are  printed  in  different- 
colored  inks,  thus  avoiding  the  following  of  lines  with  the  eye  in  their  use. 

CHECK   STAMPS 

There  are  any  number  of  devices  on  the  market  for  protecting  stamps.  Some  of 
them  merely  ink  the  check  with  indelible  ink,  some  punch  holes  in  the  paper,  and 
some  shred  the  paper,  or  roughen  it,  making  the  raising  of  checks  a  doubly  diffi 
cult  matter. 


CHECK   STAMP 


LINE    STAMPED    ACROSS    CHECK 


WAGE  TABLES— CHECK  STAMPS,  ETC.         395 

The  cut  shows  a  machine,  the  "Protectograph,"  which  stamps  over  the  face 
of  the  check  a  form,  "Not  good  for  more  than  fifty  dollars,  $50$,"  if  that  is  the 
face  of  the  check.  The  dial  is  turned  to  the  numeral  desired  and  the  lever 
pressed  down.  The  stamp  is  made  of  steel  with  a  surface  divided  into  hundreds 
of  sharp  little  teeth,  the  effect  of  which  is,  when  the  check  is  stamped,  to  cut  each 
letter  and  figure  into  minute  shreds  and  to  force  indelible  ink  into  the  very  fibre 
of  the  document,  rendering  successful  alteration  impossible. 

THE  PHONOGRAPH 

Among  the  most  modern  applications  of  devices  for  business  uses  the  "  Edison 
Business  Phonograph,"  as  utilized  for  dictating  and  transcribing  correspondence, 
should  be  mentioned.  It  seems  to  save  considerable  time,  for  the  person  dictat 
ing  can  answer  directly  as  he  reads  the  letters  without  having  to  call  a  stenog 
rapher.  Indeed,  it  does  away  with  this  intermediate  step,  as  the  operator  tran 
scribes  directly  from  the  instrument  to  the  typewriter;  and  it  appears  to  make 
the  work  more  accurate  and  satisfactory  in  many  respects,  since  the  dictator 
may  speak  as  rapidly  as  he  wishes  and  need  not  be  interrupted  by  a  stenographer 
who  is  trying  to  take  notes  at  a  speed  over  which  she  has  no  control.  At  the 
other  end  the  typewriter  can  transcribe  as  slowly  as  she  wishes,  modifying  the 
speed  of  the  cylinder  to  keep  pace  with  the  typewriter. 

The  wax  cylinder  is  started  and  stopped  either  by  the  fingers  or  by  a  foot- 
trip,  so  that  space  on  the  cylinder  need  not  be  wasted.  The  " Phonograph"  can 
always  be  set  back  to  pick  up  the  threads  of  an  interrupted  dictation. 

The  records  are  kept  in  individual  boxes,  each  numbered  and  accompanied 
with  an  ingenious  correction  sheet  or  sheet  of  direction  to  the  operator,  which 
facilitates  the  finding  of  the  letter  when  wanted. 

The  cut  of  the  "dictation  index"  shows  how  this  is  accomplished.  The  length 
of  different  letters  is  checked  off  to  correspond  with  the  position  of  the  pointer 
on  the  "  Phonograph."  Lines  are  then  drawn  from  any  point  of  the  dictation,  so 
checked  by  the  pointer,  to  the  several  directors  below — as,  "Listen  for  correc 
tions,"  "Carbon  papers,"  etc. — which  act  as  instructions  to  the  operator  who 
transcribes  the  letter  to  the  typewriter.  This  use  of  the  index  really  saves  con 
siderable  time  for  the  dictator,  as  he  need  not  wait  for  the  stenographer  to  turn 
back  in  her  notebook  and  make  corrections  and  additions.  It  also  allows  several 
persons  to  dictate  on  the  same  cylinder. 

Each  cylinder  lasts  eight  minutes,  allowing  the  dictator  to  speak  some  twelve 
hundred  words.  When  once  used  they  can  be  shaved  in  an  auxiliary  machine 
by  the  office  boy.  The  cylinders  can  stand  from  one  hundred  to  one  hundred 
and  twenty-five  shavings  before  being  rendered  useless. 


396 


FACTORY    ORGANIZATION    AND    COSTS 


" PHONOGRAPH 


IWrVTI/T        T*1*  '•"•  PATENTED  SEPT.  3.  IfOT  ,  OTHER   FA  TENTS   PENDING.    It  MM!  NOT  W  r 
RIM  A*fi pr^htc^l  ..tkoai  ,«rml«.o«  W  tit.    EDISON    BUSINESS  PHONOGRAPH  CO,  Or****.  N. 


H  THC  101  COHrO  O 


0  5^-10 

1  1  nxii  1  1  1  1 


35       40  ^K      30 

1  1  1  1  I.KI  1  1  1  1  1  ni  1  1  1  1  ixr  1  1  in  1  1  1  1 


IIL£6MM  IISTE»  FOII  CO««CCTIOII5  C1NCE1. 


EDISON    BUSINESS    PHONOGRAPH 


WAGE   TABLES— CHECK   STAMPS,   ETC-  397 

The  "Phonograph"  is  now  being  used  by  a  considerable  number  of  large 
offices,  and  its  application  will  become  more  general  as  time  goes  on.  It  is  a 
time  saver  and  convenience  to  the  business  man  and  is  therefore  an  economy. 

One  instrument  is  adaptable  to  any  one  of  the  twelve  commercial  currents  in 
any  part  of  the  world  through  a  universal  electric  motor  with  variable  resistance 
which  may  be  instantly  changed  by  the  operator  at  will. 

COUNTING   MACHINES 

Counting  machines  are  of  practical  use  in  factories  for  the  counting  of  small 
articles  in  groups.  They  work  by  a  ratio.  In  looks  they  resemble  a  scale  with 
two  scoops,  or  a  platform  and  a  scoop.  In  fact,  they  are  a  modification  of  two 
scales. 

To  obtain  the  count  of  the  contents  of  a  box  or  other  package,  first  set  out 
the  tare  of  the  package  on  one  of  the  weighing  beams.  From  the  contents  of 
the  package,  place  in  the  ratio-pan  on  the  counting  bar  the  number  of  pieces 
required,  as  indicated  upon  the  particular  side  of  the  bar  in  use.  Move  pan  along 
bar  until  the  beam  is  in  balance.  The  indicator  above  pan  will  then  rest  upon 
the  figure  corresponding  with  the  exact  number  of  pieces  contained  in  the  package. 

To  obtain  a  given  number  of  pieces,  say  10,000,  set  out  tare  of  box  or  package, 
if  one  is  used;  set  pointer  upon  the  10,000  mark;  place  the  required  number  of 
pieces  in  the  ratio-pan;  fill  package  until  the  beam  is  in  balance,  and  10,000  will 
be  the  number  of  pieces  in  the  package. 


COUNTING    MACHINE 


398  FACTORY   ORGANIZATION   AND    COSTS 

Where  weight  is  required  in  addition  to  count,  same  is  obtained  in  the  same 
manner  as  upon  any  scale.  The  position  of  the  ratio-pan  when  empty  does  not 
interfere  with  weighing;  but  when  any  material  is  in  the  pan,  it  must  either  be 
removed  or  pan  set  at  zero.  With  pan  at  zero  it  may  be  empty  or  rilled,  or  may 
be  removed  entirely,  without  affecting  the  balance. 

It  should  be  noted  that  piece-weights  are  not  required  to  obtain  the  count, 
a  handful  or  more  of  articles  serving  as  the  common  measure.  The  bars  are 
graduated  to  count  on  either  units,  dozen,  or  gross,  or  a  combination  of  these 
measures. 

The  cut  of  the  "Standard  Counting  Machine'7  will  illustrate  the  description  of 
the  method  of  using  it. 


CHAPTER   XLVIII 

FILING   AND    LOOSE-LEAF   DEVICES 
Fifteen  Cuts  Illustrating  Various  Devices. 

OFFICE  management  in  the  last  decade  has  made  no  greater  progress  in  any 
direction  than  in  the  system  of  handling  and  recording  letters,  accounts,  etc. 
The  day  of  the  old-fashioned  set  of  bookkeepers'  journals,  day  books,  ledgers, 
etc.,  is  fast  passing  away;  and  in  its  place  are  coming  the  new  and  more  con 
venient  as  well  as  more  effective  methods  of  conducting  this  end  of  a  business. 

To  discover  the  value  of  modern  office  methods  it  might  be  well  to  consider 
the  features  desired  by  an  office  manager.  In  the  first  place  he  wants  the  rec 
ords,  letters,  and  price  quotations  at  hand  for  some  time  back,  perhaps  four  or 
five  years  in  some  cases.  Further,  he  wants  these  where  he  can  lay  hold  of  them 
at  once,  without  a  long  and  irritating  search.  This  need  has  led  to  the  invention 
of  the  modern  filing  systems. 

Again,  he  wants  every  detail  of  his  business  to  be  at  his  fingers'  ends,  ready 
for  immediate  reference.  The  numerous  card  systems  are  the  result  of  the  en 
deavor  to  meet  this  want. 

The  accounts,  too,  he  wants  kept  up  to  date,  freed  from  the  deadwood  of 
closed  or  worthless  accounts,  and  kept  in  such  a  shape  that  new  accounts  will  fall 
easily  into  their  proper  place  in  the  books.  The  loose-leaf  and  card  systems  of 
ledgers,  sales  books,  etc.,  have  been  devised  to  this  end. 

Perhaps  the  greatest  need  is  the  saving  of  time.  It  has  dawned  upon  man 
agers  that  lost  time  in  the  office  is  quite  as  great  a  loss  as  in  the  factory,  if  not 
greater.  The  manager's  time  is  surely  more  important  than  any  employee's,  and 
it  seems  strange  that  this  feature  has  not  always  been  so  generally  recognized  as 
it  is  to-day.  And  if  a  bookkeeper's  time  is  not  as  important  as  the  time  of  the 
manager,  at  least  it  is  too  important  to  be  wasted  over  ponderous  ledgers,  full 
of  closed  and  long-standing  accounts,  with  long  indexes  necessary  to  find  the 
several  accounts. 

The  double  postings,  trial  balances,  etc.,  are  consumers  of  valuable  time  when 
there  are  other  methods  by  which  the  same  ends  may  be  reached  without  all  the 
trouble  and  delay  incident  upon  the  older  methods.  Accessibility  may  be  said 
to  be  the  key-word  or  central  idea  in  the  organization  of  office  management 
according  to  modern  methods. 


400 


FACTORY    ORGANIZATION   AND    COSTS 


Hosts  of  improvements  have  been  made  from  time  to  time;  but  the  greatest 
progress  has  been  made  along  four  leading  lines,  as  shown  in  four  particular  fea 
tures  of  office  detail.  These  four  features  are  filing  devices,  loose-leaf  systems, 
binders,  and  card  systems. 


FILES 


To  discuss  or  describe  the  uses  and  advantages  of  filing  devices  as  a  whole 
would  be  nothing  less  than  gratuitous.  However,  it  is  pertinent  to  the  subject 
to  mention  a  few  details  characteristic  of  particular  methods. 

In  general,  there  are  three  forms  in  which  letters,  papers,  and  documents  may 
be  filed,  which  may  be  designated  as  "flat  filing,"  "arch  filing,"  and  "vertical 
filing." 

The  flat  files  consist  of  moderate-sized  cases  divided  by  leaves  catalogued 
alphabetically,  between  which  letters  and  papers  are  inserted  flat  and  held  ready 
for  reference. 

The  arch  files  consist  of  two  hollow  uosts  mounted  on  a  small  board,  together 
with  two  movable  arches  which  fit  inside  the  hollow  posts  and  are  thrown  back 


FILING  AND   LOOSE-LEAF   DEVICES 


•J01 


for  the  purpose  of  filing  papers  on  the  posts.  This  method  necessitates  the  punch 
ing  of  two  holes  in  the  papers,  but  afterward  allows  of  freer  reference,  as  the 
papers  cannot  be  disarranged  when  once  they  are  in  order  on  the  posts. 

The  vertical  files  are  used  for  filing  letters  and  papers  on  edge,  inside  of  guides 
or  folders  which  are  arranged  and  catalogued  by  projecting  tips  on  the  folders. 

Illustrations  of  the  different  kinds  of  filing  devices  in  connection  with  cabinet 
holders  are  given  through  the  courtesy  of  the  Yawman  &  Erbe  and  Globe- Wer- 
nicke  companies. 


CABINETS 


Many  firms  market  cabinets  for  filing  purposes,  especially  the  vertical  files. 
When  these  are  arranged  in  a  drawer  and  catalogued,  as  in  the  card  cases  of  a 
library,  they  are  particularly  handy  for  reference,  being  taken  out  and  replaced 
easily  and  without  disturbing  the  other  folders.  These  folders  may  be  classified 
either  by  subject,  names  of  correspondents,  geographically,  chronological!}',  or  in 
any  other  way  desired.  Different  parts  of  the  large  cabinet  can  be  reserved  for 
different  items,  such  as  bills,  letters,  receipts,  etc. 

One  of  the  most  useful  devices  connected  with  the  keeping  of  office  books  is 
the  loose-leaf  system,  which  allows  the  removal  or  insertion  of  different  accounts 


402 


FACTORY    ORGANIZATION   AND    COSTS 


as  desired.  Thus,  if  an  account  is  closed  or  becomes  dead  in  any  way,  it  can  be 
transferred  to  another  binder,  and  is  no  longer  in  the  way  of  the  bookkeeper  as 
he  deals  with  the  live  accounts.  As  new  accounts  are  opened  they  can  be  entered 
on  their  individual  pages  in  alphabetical  order,  or  in  any  way  desired. 

This  system  may  also  be  used  to  avoid  the  transcription  of  bills  and  accounts. 
For  instance,  the  leaves  of  the  Sales  Book  can  be  printed  by  carbon  paper,  at  the 
same  time  as  the  bills,  on  the  typewriter  or  billing  machine.  When  the  sheet  is 
full,  it  is  merely  put  in  its  place  in  the  Sales  Book;  and  the  work  is  then  completed 
in  one  stroke,  as  it  were. 

It  is  true  that  loose-leaf  methods  are  not  necessarily  adapted  to  every  busi 
ness.  Whether  they  will  prove  to  be  the  thing  needed  depends  on  the  business, 
its  size,  and  many  of  the  circumstances  in  the  particular  office. 


FILING    SYSTEM 


These  loose-leaf  forms  necessitate  binders  for  holding  them,  and  of  these  there 
are  many  different  styles.  One  feature  common  to  nearly  all  of  them  is  a  lock 
and  key,  by  the  use  of  which  the  manager  can  be  sure  that  no  leaves  are  inserted 
or  removed  without  the  knowledge  of  the  party  in  charge  of  them. 

Several  cuts  are  given  here  of  different  forms  of  binders.  Some  of  them 
employ  locking  rings  and  others  a  form  of  clutch,  of  which  there  are  many  varie 
ties.  Possibly  the  most  used  is  the  "post"  form  of  binders.  The  following  cuts 
to  illustrate  the  loose-leaf  ledgers  are  given  through  the  courtesy  of  the  Samuel 
Tatum  Company  and  the  Twinlock  Company. 

The  cuts  will  show  the  prominent  features  of  each.  Some  of  the  post  binders 
are  automatic,  but  most  are  accompanied  by  a  key  which  serves  both  to  bind  the 
leaves  closer  and  to  lock  the  binding  mechanism  at  the  same  time.  Some  of  the 


FILING   AND   LOOSE-LEAF   DEVICES 


403 


LOOSE-LEAF   LEDGERS 

clutch  books  are  so  finely  adjusted  that  they  will  hold  firmly  a  single  leaf,  as  in 
the  Kalamazoo  binder. 

The  card  system  devices  are  at  once  the  most  used  and  abused  of  the  present 
set  of  devices  mentioned.  Much  has  been  written  about  the  general  convenience 
of  card  systems — so  much,  perhaps,  that  an  exaggerated  idea  of  their  value  has 
been  impressed  upon  the  public. 

Card  systems  are  adapted  to  business  practices  in  general  when  the  business 
is  complex,  and  when  there  are  many  separate  elements  to  be  continuously  kept 
in  mind.  In  almost  any  business  there  is  room  for  a  certain  amount  of  card- 
indexing  with  advantage.  Almost  every  firm  has  more  or  less  of  a  list  of  persons 
to  whom  it  sends  circular  letters,  advertising,  etc.  A  card  index  of  these  names 
and  addresses  is  of  material  advantage.  They  may  be  catalogued  under  the  head 
of  "Mail  Order"  cards,  and  the  list  of  prospective  customers  could  be  kept  apart 
in  a  section  of  "Follow  Up"  cards.  "Quotation  Made"  and  "Quotation  Re 
ceived"  cards  are  also  a  matter  of  convenience,  and  prevent  errors  that  may  lead 
to  misunderstanding  and  disputes.  Another  series  might  be  designated  as  "Col 
lection"  cards,  "Credit"  cards,  "Stock"  cards,  "Indexing"  cards;  and  still 
others  for  particular  purposes.  The  use  of  cards  in  collecting  of  time  "In"  and 
"Out"  of  employees  and  of  the  time  spent  on  jobs  has  already  been  described. 

These  files  are  generally  long,  narrow  drawers  in  a  cabinet,  and  may  have  one 
rod  or  a  duplex  rod  for  the  retaining  of  the  cards  in  the  drawers  in  case  of  acci 
dent.  Very  often  there  is  no  rod  at  all.  The  general  use  of  these  cards  resembles 
the  library  catalogues  with  which  almost  every  one  is  familiar. 

Referring  again  to  the  statement  concerning  the  abuse  of  card  systems  and 
their  general  suitability  for  complex  or  widely  distributed  interests,  it  might  be 


404  FACTORY   ORGANIZATION   AND    COSTS 

added  that,  the  smaller  a  business  is,  the  less  use  in  general  the  management  has 
for  a  card  system. 

Card  systems  are  so  adapted  to  detail  that  they  form  a  perpetual  temptation 
to  make  "red  tape."  The  danger  connected  with  their  use  lies  in  this  tendency. 
They  are  very  apt  to  be  overestimated  through  the  enthusiasm  aroused  over  the 
work  already  satisfactorily  performed. 

It  should  be  borne  in  mind  that  the  introduction  of  any  of  the  mechanical 
office  devices  mentioned  in  this  chapter  will  be  successful  if  it  meets  the  four-fold 
divisions  of  advantages  previously  given.  Nothing  is  gained  by  receiving  an 
advantage  in  one  way  and  then  having  it  nullified  by  some  disadvantage  con 
nected  with  the  device  in  another  way.  It  may  be  stated  again,  for  emphasis, 
that  the  proper  devices  to  be  purchased  and  the  methods  to  be  used  can  only  be 
determined  by  careful  study  of  particular  conditions.  These  conditions  will  not 
vary  to  meet  the  methods;  therefore  the  methods  must  meet  the  conditions. 


GENERAL    INDEX 


Accountant  and  Manufacturer  (Wherein  Fault), 
65. 

Accounts,  Classification  of,  203. 

Accounts,  Departmental,  267. 

Accounts  Payable,  Register  of,  186,  264,  330. 

Accounts  Payable  Voucher,  182,  328. 

Accuracy  of  Yearly  Profits,  8. 

Actual  Costs,  28. 

Actual  Cost  System,  Principles  of,  61. 

Adding  Machines,  365. 

Adding  Machines  with  Typewriter  Attachments, 
362. 

Addressing  Machines,  371. 

Administrative  and  Selling  Expenses  not  In 
cluded  in  Factory  Cost,  28. 

Administrative  Expenses,  207. 

Analysis  of  Cost  Accounting,  28. 

Analysis  of  Cost  Accounting,  Central  Idea  or 
Base,  29. 

Analysis  of  Cost  Accounting,  Indirect,  29. 

Analysis  of  Cost  Accounting,  Labor,  29. 

Analysis  of  Cost  Accounting,  Material,  29. 

Analysis  of  Cost  of  Sales,  178,  234. 

Analysis  of  Factory  Expenditures,  167,  283, 
319. 

Analysis  of  Labor,  131,  240,  250,  260,  280,  297, 
313,  337. 

Appliances,  Mechanical  Office,  345. 

Article,  Profit  on,  164. 

Assets  (Balance  Sheet),  229,  254,  303. 


B 


Balance  Sheet  (Comparative),  229,  254,  304. 

Bank  Columns,  Use  of  in  Cash  Book,  198. 

Basic  Principles  of  Distributing  Indirect  Ex 
penses,  30,  39. 

Best  Method  of  Distributing  Indirect  Expenses, 
48. 

Billing  System,  175,  284,  324. 

Bill  of  Material,  104,  258. 

Blanket  Method  of  Distributing  Indirect  Ex 
penses,  39. 

Bonus  Plan,  Method  of,  25. 

Bonus  Plan  of  Wages,  24. 

Bonus  Plan,  Summary  of,  26. 

Borrowing  a  System,  6. 

Broken  Line  in  Forms,  65. 

Burden  (see  Indirect  Expense). 


C 


Calculating  Machines,  349. 

Cash  Books  (Register  of  Receipts  and  Disburse 
ments),  193,  288. 

Cash  Systems,  193,  288. 

Cash  Voucher,  193,  196. 

Changes  in  Conditions  of  Manufacture,  5. 

Changes  in  System,  5. 

Check  Stamp,  394. 

Check  Vouchers,  191,  331,  343. 

Classification  of  Accounts,  203. 

Classification  of  Elements  of  Estimated  Costs, 
238. 

Clock  Stamp,  386. 

Clock  Tickets,  115,  119. 

Clocks,  Time,  376. 

Comparative  Balance  Sheet,  229,  254,  305. 

Comparative  Profit  and  Loss  Statement,  228. 

Computing  Machines,  349. 

Contract  Records,  214. 

Consignment  Accounts,  205. 

Controlling  Accounts,  205. 

Co-operation  of  Employer  and  Employee,  12. 

Cost  Accounting,  Analysis  of,  28. 

Cost  Accounting,  Lack  of  Knowledge  of,  28. 

Cost  by  Department,  152,  153,  154. 

Cost  Keepin^  Principles,  61. 

Cost  of  Lost  Time  bv  Hours  for  600  Workmen, 
16. 

Cost  of  Lost  Time  by  Minutes  for  100  Workmen, 
15. 

Cost  of  Production,  Illustrating  Wage  Rates,  21, 
24. 

Cost  of  Sales,  Analysis  of,  233,  239,  246,  287,  326, 
342. 

Cost  of  Sales,  Estimated,  234,  239,  246. 

Cost  of  Sales,  Register  of,  178. 

Cost  Records,  148,  262,  276,  297,  315,  340. 

Cost  Records,  Estimated,  233,  238,  244. 

Cost  Records,  Process,  155,  297. 

Cost  Sheet,  148. 

Cost  Sheet,  Comparative,  157,  158. 

Cost  System,  Actual,  General  Introduction  to,  60. 

Cost  System,  Departmental,  256. 

Cost  System,  Estimated,  Based  on  an  An 
nual  Verification  of  Departmental  Charges 
for  Labor,  Material  and  Indirect  Expenses, 
237. 

Cost  System,  Estimated,  Based  on  an  Annual 
Verification  of  Material,  Labor  and  Indirect 
Charges,  232. 


406 


GENERAL    INDEX 


Cost  System,  Estimated,  Based  on  Monthly  or 
Annual  Verification  of  Estimated  Cost  of  Class 
of  Product  according  to  Departmental  Ma 
terial,  Labor  and  Indirect  Charges,  244. 

Cost  System,  Estimating,  General  Introduction 
to,  59. 

Cost  System,  Product  System,  according  to  the 
Process  Cost  Method,  334. 

Cost  System,  Product  System,  according  to  the 
Productive  Labor  Method  of  Cost  Finding, 
306. 

Cost  System,  Special  Order,  according  to  the  Pro 
cess  or  Machine  Cost  Method  of  Cost  Finding, 
291. 

Cost  System,  Special  Order,  of  Cost  Keeping  ac 
cording  to  Productive  Labor  Method,  269. 

Cost  Systems,  Effect  on  Organization,  5. 

Cost  Systems,  Objections  to,  6. 

Costs  and  Production,  225. 

Costs,  Cupola,  161. 

Costs,  Departmental,  31. 

Costs,  Diagram  of,  30. 

Costs,  Elements  of,  29. 

Costs,  Estimated,  162,  233,  238. 

Costs,  Factory,  30. 

Costs,  Machine,  155. 

Costs,  Partial,  28. 

Costs,  Power,  156. 

Costs,  Prime,  30. 

Costs,  Relation  to  Wage  Systems,  10. 

Counting  Machines,  397. 

Credit  Certificate,  175,  284,  324. 

Cupola  Production  Report,  138. 

Currency,  Deposit  of,  198. 

Currency,  Distribution  Forms  for  Pay  Roll,  197. 

Customers'  Ledger,  showing  Profits  or  Losses, 
200. 

Customers'  Records,  Forms  for,  200. 

Customers'  Records,  Relating  to  Foundries,  201. 

Cutting  Rates  of  Wages,  11. 


D 


Day  Rate,  applicable  to  certain  class  only,  15. 

Day  Rate,  Beginning  of,  13. 

Day  Rate,  Lost  Time,  value  of — five  minutes  per 

day,  15. 
Day  Rate,  Lost  Time,  value  of — one  hour  per 

day,  16. 
Day  Rate,  places  good  and  poor  workmen  on 

same  level,  14. 

Day  Rate,  quality  of  work,  14. 
Day  Rate,  removes  incentive,  14. 
Day  Rate  System  of  Wages,  13. 
Defective  Work  Report,  165,  317. 
Department  Accounts,  267. 
Departmental  Cost  Systems,  256. 
Departmental  Indirect  Expenses,  31. 
Department  Costs,  152,  153,  154. 
Departments,  Costs,  32. 
Departments,  Operating,  31. 


Deposit  of  Currency,  198. 

Depreciation,  34,  51. 

Designs,  General  Introduction  to,  58. 

Diagram  of  Factory  Costs,  30. 

Differential  Rate  Plan,  20. 

Differential  Rate  Plan,  conditions  where  to  ap 
ply,  21. 

Differential  Rate  Plan,  effect  on  employer  and 
workmen,  20,  21. 

Differential  Rate  Plan,  Method  of,  20. 

Differential  Rate  Plan,  relation  to  piece  work,  20. 

Differential  Rate  Plan,  summary  of  advantages, 
22. 

Differential  Rate  Plan,  table  showing  results,  21. 

Differentiating  between  Good  and  Poor  work 
men,  21. 

Dissatisfaction  of  Workmen,  17. 

Distribution  of  Indirect  Expenses,  38. 

Distribution  of  Indirect  Expenses,  Blanket 
Method,  39. 

Distribution  of  Indirect  Expenses,  Introductory, 
38. 

Distribution  of  Indirect  Expenses,  on  Direct 
Labor,  40,  41. 

Distribution  of  Indirect  Expenses,  on  Direct 
Labor  and  Material,  41,  47. 

Distribution  of  Indirect  Expenses,  on  Direct 
Labor  Hours,  41,  44. 

Distribution  of  Indirect  Expenses,  on  Fixed  Ma 
chine  Rate,  41,  53. 

Distribution  of  Indirect  Expenses,  on  New  Ma 
chine  Rate,  41,  49. 

Distribution  of  Indirect  Expenses,  on  New  Pay 
Rate,  41,  55. 

Distribution  of  Indirect  Expenses,  on  Old  Ma 
chine  Rate,  41,  48. 

Distribution  of  Pay  Roll  Currency,  197. 

Distribution  of  Power  Cost,  156. 

Division  of  the  Element  of  Estimated  Costs,  238. 

Drawing  Record,  212. 

Drawings,  Patterns,  and  Equipment  Records, 
212. 

Duplicating  Machines,  365. 


E 


Earnings,  Monthly,  231. 

Effect  of  Cost  Systems  on  Organization,  5. 

Effect  on  Employer  of  Differential  Rate  Plan,  21. 

Effect  on  Production  of  Fair  Rate  of  Wages,  20. 

Effect  on  Workmen  of  Differential  Rate  Plan,  20. 

Elements  of  Costs,  29. 

Employee  and  Employer,  Co-operation  of,  12. 

Envelope,  Pay,  196. 

Errors  in  Designing  Forms,  64. 

Estimating  Cost  Systems,  based  on  an  annual 

verification    of    Departmental    Charges    for 

Labor,  Material  and  Indirect  Expenses,  237. 
Estimating  Cost  Systems,  based  on  an  annual 

verification  of  Material,  Labor  and  Indirect 

Expenses,  232. 


GENERAL    INDEX 


407 


Estimating  Cost  Systems,  based  on  a  monthly  or 
annual  verification  of  estimated  cost  of  class  of 
product  according  to  departmental  Material, 
Labor  and  Indirect  Expenses,  244. 

Estimating  Cost  Systems,  Verification  of,  235, 
241,  250. 

Estimating  Records,  213. 

Expenditures,  Report  of,  194. 

Expense,  Indirect,  38. 

Expense,  Overhead,  7-38. 

Experience  and  Theory,  1. 


Factory  Account,  205. 

Factory  Costs,  30. 

Factory  Departments,  31. 

Factory  Expenditures,  Statement  of,  167,  282, 

319. 

Fair  Rate  of  Wages  and  Effect  on  Production,  21. 
Filing  Systems,  399. 
Finished  Product,  Stock  Record  of,   144,  281, 

317,  339. 

Fixing  Rate  of  Wages,  12,  19. 
Floor  Space,  51. 
Forms,   Errors  in  Designing  and   Selection  of, 

6l 

Forms,  General  Introduction  to,  58. 
F/jrms,  List  of,  used  in  System,  63. 
Forms,  Principles  used  in  Designing,  64. 
Forms,  Right  Use  of,  6. 
Forms,  Secondary  to  Principles,  6. 
Forms,  Size  of,  65. 
Forms,  Special  Introduction  to,  64. 
Forms,  Wrong  Use  of,  6. 


G 


General  Expense,  Distribution  of,  38. 

General  Ledgers,  203. 

Good  and  Poor  Workmen,  21. 

Gross  Profit,  242. 

Growth  of  Business,  Necessity  of  System,  4. 


H 


Handling  of  Raw  Material,  266. 

Hours  Lost,  Cost  of,  16. 

How  Classification  of  Accounts  are  Charged  and 

Credited  in  Ledger,  267. 
How  to  Distribute  Depreciation,  51. 
How  to  Distribute  Floor  Space  Cost,  51. 
How  to  Distribute  Insurance,  51. 
How  to  Distribute  Interest  on  Investment,  33, 

50. 

How  to  Distribute  Power  Cost,  163. 
How  to  fix  Rate  of  Wages,  12,  19. 
How  to  Install  Department  System,  244,  256. 
How  to  Select  Forms,  64. 


How  to  Treat  Returned  Goods  and  Allowances  in 

a  Cost  System,  284. 

How  to  Verify  Estimated  Costs,  232,  237,  244. 
Human  Element  in  Installing  Wage  Systems,  27. 


Incentive,  Lack  of,  14. 

Indirect  Expenses,  Classification  of,  33. 

Indirect  Expenses,  Criticism  of  Distribution  on 
Direct  Labor,  43. 

Indirect  Expenses,  Criticism  of  Distribution  of 
on  Direct  Labor  and  Material,  47. 

Indirect  Expenses,  Criticism  of  Distribution  on 
Direct  Labor  Hours,  46. 

Indirect  Expenses,  Departmental,  33. 

Indirect  Expenses,  Distribution  of,  38. 

Indirect  Expenses,  Distribution  of,  according  to 
Factory  Conditions,  39. 

Indirect  Expenses,  Distribution  of,  on  Direct 
Labor  and  Material,  41,  47. 

Indirect  Expenses,  Distribution  of  on  New  Ma 
chine  Rate,  48. 

Indirect  Expenses,  Distribution  of  on  New  Ma 
chine  Rate,  Method  of,  41,  49. 

Indirect  Expenses,  Distribution  of  on  New  Pay 
Rate,  55. 

Indirect  Expenses,  Distribution  of  on  New  Pay 
Rate,  Method  of,  41,  55. 

Indirect  Expenses,  Distribution  of  on  New  Pay 
Rate,  Saving  of  Time,  56. 

Indirect  Expenses,  Distribution  of  on  Old  Ma 
chine  Rate,  Criticism  of,  48. 

Indirect  Expenses,  Distribution  of  on  Old  Ma 
chine  Rate,  Method  of,  41,  48. 

Indirect  Expenses,  Distribution  on  Direct  Labor, 
41. 

Indirect  Expenses,  Distribution  on  Direct  Labor 
Hours,  44. 

Indirect  Expenses,  Distribution  on  Fixed  Ma 
chine  Rate,  53. 

Indirect  Expenses,  Distribution  on  Fixed  Ma 
chine  Rate,  Method  of,  41,  53. 

Indirect  Expenses,  Elements  Comprising,  33. 

Indirect  Expenses,  Elements  of,  33. 

Indirect  Expenses,  General  Outline  of,  38. 

Indirect  Expenses,  Introductory  to  Distribution, 
38. 

Indirect  Expenses,  "Ratio,"  31. 

Indirect  Expenses,  the  most  worrying  problem, 
7. 

Indirect  Expenses,  where  Distribution  is  wrong 
in  principle,  32. 

Indirect  Expenses,  where  Fairly  Accurate,  57. 

Indirect  Expenses,  where  Plan  of  Distribution  of 
on  Direct  Labor  and  Material  may  be  used,  48. 

Individuality  of  Workmen,  12. 

Ingenuity  in  Devising  Systems,  8. 

Inspection,  22. 

Insurance,  How  to  Distribute,  51. 

Interest  on  Investment,  33,  50. 


40S 


GENERAL    INDEX 


Introduction,  General,  to  Actual  Cost  Systems, 
60. 

Introduction,  General,  to  Forms,  58. 

Introduction,  General,  to  Systems,  58. 

Introduction,  Special,  to  Actual  Cost  Systems, 
256,  269,  291,  306,  334. 

Introduction,  Special,  to  Estimating  Cost  Sys 
tems,  232,  237,  244. 

Introduction,  Special,  to  Forms,  64. 

Introduction,  Special,  to  Mechanical  Office  Ap 
pliances,  345. 

Introduction  to  Estimating  Cost  Systems,  59. 

Introduction  to  Wage  Systems,  10. 

Inventory  Closing  of  Books,  9. 

Inventory  of  Material,  217,  232,  237,  245,  332. 

Invoice  (Billing  System),  175,  284,  324. 


Labor,  Distribution  of,  124,  240,  250,  260,  281, 

314,  338. 
Labor,  Pay  Roll,  122,  240,  250,  260,  281,  297, 

313  337 
Labor,  Workmen's  Reports  of,   110,  249,  259, 

278,  295,  313,  337. 

Lack  of  Knowledge  of  Cost  Accounting,  28. 
Leaks,  5. 
Ledger,  Customers',  showing  Profit  and  Loss, 

200. 

Ledger,  Operating,  171,  321. 
Less  Opposition  to  Premium  Plan,  22. 
Liabilities  (Balance  Sheet),  229,  254,  305. 
Light,  Heat,  and  Power,  33. 
Listing  Machines,  356. 
List  of  Forms  used  in  Systems,  63. 
Loose-leaf  Methods,  399. 
Loss  and  Gain  (Statement  of  Profit  and  Loss), 

226,  252,  302. 

Lost  Time  by  100  Workmen,  15. 
Lost  Time  by  600  Workmen,  16. 


M 


Machine  Costs,  155,  301,  340. 

Machine  or  Process  System  of  Costs,  291,  340. 

Manufacturers  and  Accountants  (where  in  fault), 

65. 

Material,  Bill  of,  104,  258. 
Material,  Inventory  of,  217,  232,  237,  245,  268, 

332. 

Material,  Raw,  Stock  Record  of,  82,  274,  307. 
Material,  Report  of  Delivered,  104,  312. 
Material,  Report  of  Received,  74,  272,  307. 
Material  Requisition,  104,  247,  277,  294,  311. 
Mechanical  Office  Appliances,  345. 
Mills,  Departments  of,  Machine  Works,  32. 
Mills,  Departments  of,  Stove  Manufacture,  32. 
Mills,  Departments  of,  Textile,  31. 
Minutes  Lost,  Cost  of,  15. 
Modern  Methods,  Value  of,  2. 


Monthly  Profits,  9. 

Monthly  Reports  (Financial),  225. 

Moulders'  Production  Report,  142. 


N 


Necessity  of  Fair  Rate  of  Wages,  21. 

New  Method  of  Sharing  Profits  with  Workmen, 

27. 
New  Profession,  12. 


0 


Objections  to  Cost  Systems,  2. 

Office  Appliances,  Mechanical,  345. 

Operating  Departments,  31,  32. 

Operating  Departments  of  Foundry  and  Stove 

Works,  32. 

Operating  Departments  of  Machine  Works,  33. 
Operating  Departments  of  Textile  Mills,  31. 
Operating  Ledger,  171,  321. 
Order  and  Sales,  223. 

Order,  Production,  91,  257,  275,  293,  309,  335. 
Order,  Purchase,  70,  272. 
Organization,  1. 
Overhead  Charges  (see  Indirect  Expenses) 


Partial  Costs,  28. 

Pattern  Costs,  Customers'  Record  of,  201. 

Pattern  Record,  212. 

Pay  Envelope,  196. 

Pay  Roll,  129,  240,  249,  260,  281,  297,  313,  337. 

Pay  Roll  (Distribution  of  Currency),  197. 

Phonograph,  The,  395. 

Piece  Work,  16. 

Piece  Work,  Comparison  to  Day  Rate,  in  Figures, 
24. 

Piece  Work,  Increased  Production,  16. 

Piece  Work,  Inspection,  18. 

Piece  Work,  Rate  Fixing,  12,  19. 

Plant  Card,  210. 

Power,  33,  51. 

Power  Costs  and  Distribution,  156. 

Premium  Plan  of  Wages,  22. 

Premium  Plan  of  Wages,  Comparison,  in  Fig 
ures,  24. 

Premium  Plan  of  Wages,  Method  of,  22. 

Premium  Plan  of  Wages,  more  Popular  with 
.  Workmen,  22. 

Premium  Plan  of  Wages,  Summary  of,  23. 

Premium  Plan  of  Wages,  Table  in  Comparative 
Form,  with  all  Plans,  24. 

Price  Record,  214. 

Prime  Costs,  30. 

Principles  of  Cost  Keeping,  61. 

Printing  Machines,  365. 

Process  Cost  Record,  155. 

Process  Cost  System,  291,  334. 


GENERAL    INDEX 


409 


Product  System,  306,  334. 

Production  and  Costs,  135,  225. 

Production,  Cost  of,  Illustrated  in  Wage  Rates, 

24. 
Production,    Effect   on,   due   to   Fair   Rate   of 

Wages,  21. 

Production  Orders,  91,  257,  275,  293,  309,  335. 
Production  Report,  132,  261,  316,  339. 
Production  Report,  Brass  Foundry,  139. 
Production  Report,  Cupola,  138. 
Production  Report,  Moulders',  142. 
Productive  Labor  System  of  Costs,  269,  306. 
Profession,  New,  12. 

Profit  and  Loss,  Statement  of,  226,  252,  302. 
Profit  Sharing  and  Stock  Distributing  Plan  of 

Wages,  26. 
Profit  Sharing  and  Stock  Distributing  Plan  of 

Wages,  seldom  used,  26. 
Profit  Sharing  and  Stock  Distributing  Plan  of 

Wages,  only  Plan  where  Practical,  27. 
Profits,  Monthly,  9. 
Profits,  Yearly,' 8. 
Purchase  Journal,  190,  239,  247. 
Purchase  Orders,  70,  272,  307. 
Purchase  Requisition,  67,  270,  294,  307. 
Purchasing  Agent,  73,  79. 


Q 

Quality  of  Work  under  Differential  Rate  Plan, 
21. 


R 

Rate,  Day,  13. 

Rate,  Differential,  20. 

Rate,  Premium,  22. 

Rates,  Bonus,  24. 

Rates  of  Wages,  Fixing  of,  12,  19. 

Rates,  Piece  Work,  16. 

Raw  Material,  Stock  Record  of,  82,  274,  307. 

Records,  Cost,  148,  261,  275,  293,  297,  314,  340. 

Records,  Cost,  Estimated,  233,  238,  246. 

Red  Tape,  too  much  of,  6. 

Register  of  Accounts  Payable,  186,  263,  330. 

Register  of  Sales  and  Costs,  178,  265,  287,  326, 

342. 
Register  of  Sales  and  Costs,  Estimated,  232,  237, 

244. 

Relation  of  Production  Orders  to  Costs,  102. 
Report,  Defective  Work,  165,  319. 
Report  of  Material  Delivered,  104,  312. 
Report  of  Material  Received,  74,  272,  307. 
Reports,  Production,  132,  261,  316,  339. 
Reports,   Time,   110,  249,   258,   278,   295,  313, 

336. 

Requisition,  Material,  104,  247,  277,  294,  311. 
Requisition,  Purchase,  63,  270,  307. 
Right  Use  of  Forms,  6. 


S 

Sales  and  Cost,  Estimated,  232,  237,  244. 

Sales  and  Cost,  Register  of,  178. 

Sales  and  Costs,  Register  of,  287,  326,  342. 

Sales  and  Orders,  223. 

Sales  and  Selling  Costs,  222. 

Sales  by  Territory,  221. 

Sales  Department,  Value  of  Costs  to,  3. 

Salesmen's  Costs,  222. 

Salesmen's  Report,  221. 

Sales,  Register  of,  265. 

Sales  Report  and  Analysis,  221. 

Sales  Sheet,  175,  284,  324. 

Saving  in  Cost   of   Production,   Illustrated   by 

Wage  Rates,  24. 

Selecting  Forms  and  Designs,  64. 
Selling  Expenses,  28,  207. 
Selling  Expenses  not  Included  in  Factory  Costs, 

28. 
Sharing  Profit  with  Workmen,  New  Method  of, 

26. 

Size  of  Forms,  65. 
Soldiering,  15. 
Special  Order  Systems,  291. 
Stamps,  Time,  386. 
Statement  of  Factory  Expenditures,  167,  282, 

319. 

Stock  Distribution  Relating  to  Workmen,  26. 
Stock  Records,  Finished  Product,  144,  281,  317, 

339. 

Stock  Records,  Raw  Material,  82,  274,  307. 
Stock  Systems,  62. 
Stove  Manufacturing,   Operating  Departments, 

32. 

Study,  Course  of,  58. 
System,  Changes  in,  5. 

System,  Details  Necessary  to  Management,  4. 
System  Forms,  List  of  used  in  Systems,  63. 
System,  too  much  of,  6. 
System,  Value  to  Management,  4. 
System,  when  Necessary,  4. 
System,  when  Not  Necessary,  4. 
Systems,  Actual  Cost,  256,  269,  291,  306,  334. 
Systems,  Estimating  Costs,  232,  237,  244. 
Systems,  General  Introduction  to  Actual  Cost 

Systems,  60. 
Systems,   General   Introduction  to   Estimating 

Cost  System,  59. 
Systems,  Principles  used  in,  61. 


Tables,  Wage,  394. 

Territorial  Sales,  221. 

Textile  Mills,  Department  of,  31. 

Theory  and  Experience,  1. 

Time  Clocks,  376. 

Time  Clock  Tickets.  115. 

Time  Lost  under  Day  Rate  of  Wages,  15. 


410 


GENERAL    INDEX 


Time  Stamps,  386. 

Time  Stamp  Tickets,  118. 

Time  Tickets,  110,  249,  258,  278,  295,  313,  336. 

Time,  Waiting,  15. 

Tool  Record,  211. 

Too  Much  System,  6. 

Typewriter  with  Adding  Attachment,  362. 


Unit  of  Measure,  52. 


U 


V 


Value  of  Costs  in  Addition  to  Finding  Costs,  3. 

Value  of  Costs  to  Sales  Department,  3. 

Value  of  Lost  Time,  15. 

Value  of  Modern  Methods,  2. 

Value  of  Monthly  Profit  and  Loss  Statements,  9. 

Value  of  System  to  Management,  4. 

Value  of  Variety  of  Forms  for  Reference,  6. 

Verification  of  Estimated  Cost  Systems,  235,  241, 

250. 

Verification  of  Inventories,  217. 
Voucher,  Accounts  Payable,  182,  329. 
Voucher,  Cash,  196. 
Voucher,  Check,  191,  331,  343. 


W 


Wage  Systems,  a  New  Occupation,  12. 

Wage  Systems,  Bonus  Plan,  24. 

Wage  Systems,  Day  Rate,  13. 

Wage  Systems,  Differential  Rate,  20. 

Wage  Systems,  Human  Element  in  Installing, 
27. 

Wage  Systems,  Piece  Work,  16. 

Wage  Systems,  Premium  Plan,  22. 

Wage  Systems,  Profit  Sharing  and  Stock  Distrib 
uting  Plan,  26. 

Wage  Systems,  Relation  to  Costs,  24. 

Wage  Tables,  394. 

Wages,  How  to  Fix  Rate  of,  12,  19. 

Waiting  Time,  15. 

Where  Profit  Ends  and  Loss  Begins,  9. 

Workman,  Effect  on,  of  Differential  Rate  Plan, 
21. 

Workman,  Individuality  of,  12. 

Workman,  Lost  Time,  15. 

Workman,  No  Incentive  to,  14. 

WTorkmen,  Good  and  Poor,  21. 

Wrong  Use  of  Forms,  6. 


Yearly  Profits,  8. 


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